Envista Holdings Corporation (NVST) Earnings Call Transcript & Summary

Good morning. Thank you. Thanks, everyone. Really appreciate you guys joining us today for our investor access at the Envista Summit. Obviously, before we begin, I do need to remind you that during today's presentation, we will be discussing non-GAAP financial measures. The reconciliations and other information required by SEC Regulation G are available in the presentation or on the Investors section of our website, www.envistaco.com. Also, during our meeting today, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except where required by law. So with that, I'm really looking forward to today. We're going to have a presentation -- start with the presentation followed by a question and answer. For the people online, you can please enter your questions into the chat. And we'll ask them on your behalf. With that, I would like to turn over to Amir Aghdaei, our CEO.

I'm good. Thank you, Stephen. Thanks for being here. Welcome to Vegas. -We have close to about 1,600 dentists here today. And this is our third round of inviting a large number of customers in creating the environment that they can learn from each other. They can teach each other best practices as well as networking. We're getting a lot of good feedback in this form. So we're going to step and repeat it continuously. We have it in Europe for European in Dubai, in May. I'm going to continue to repeat that at least twice a year moving forward. And I'd love to have you here and give you an opportunity to interact with customers, see our products in action. I think it's a good forum for a little bit of exchange. Today, we have a little bit of a different forum. We wanted to make sure that we get a chance to see some of our up-and-comers leaders, the people who are actually running our businesses and get an opportunity to ask questions and have exchange with them. So let me tell you a little bit about what we have been talking about. This is an incredible industry. We really like the industry. It's a little bit choppy in the short term, but in the long run, more information we get, more people that we talk to, they're more excited about opportunities ahead. And what we have done, hopefully, you have seen that in the past 14 quarters, build the infrastructure, build the capabilities that is truly differentiated, strategically differentiated and proven track record built based on EBS, and we continue to perform well and do this better and better going forward. Our story really hasn't changed at all from pre-IPO, IPO. We want to build a company that is growing faster, makes better impact on the margin, and it's really truly differentiated through use of capital prudent approach, very thoughtful approach and looking at the portfolio management and it's primarily focused on improving patients' life by giving capabilities in the hands of dentists so that they can become a lot more productive. Those of you who may not know a little bit about us, we have about 13,000 employees. We have brands that have been around for almost 130 years. We have really shifted this business in the past 3 years. Over 60% of our business now is direct. Over 80% of our business is consumable everyday use. About 50-some percent of our business is done in North America, and we have a really broad set of regional perspective. And we will go through various segments, but our implant business is a significant part of our overall portfolio, over $1 billion. Our ortho business close to about $600 million. And then our consumer is one of the most differentiated sort of product that we have out there and continue to build on our diagnostic capabilities as we go forward. What differentiates us is not the breadth of the product and the heritage, but the operational capabilities that we are putting in place based on EBS. I want to put a lot of energy today talk about that specifically in. Take you at one level deeper, to tell you what that is in action. This company is built based on a set of core values. We brought tremendous amount of capabilities from Danaher, and we really adopted that to environment that we operate in dental, 5 key core values around customer, customer centricity. We get up every morning with one mind in mind -- one thing in mind. To improve what people do, to improve the quality of life of people. We talk to our dentists or around here today, you'll find out that they find us as enabling them to be better to the best of what they can be. We're focused on innovation that matters, that makes a difference. We're building a company that is built based on respect, diversity, integration. This industry is rapidly changing and becoming a female industry. I was amazed looking at the audience yesterday, over 50% are female, over 55% of graduate pharmacologists are female. We are adopting and changing that, becoming more and more brand of the future, and we need to do that change with us. We need to lead it move in that direction. We build on based on continuous improvement, the EBS at the foundation of how we do things. Last but not least, it's about leadership, ownership, accountability and empowerment. We call this circle, there's 5 key pillars of what this company stands for. We're communicating that, elevating it, talk about it continuously. Wherever you go, whoever you talk to, these values are embedded in the organization, gives us an opportunity to really build a legacy, a company that stands the test of time. I'll talk a little bit about what we have done, pre-IPO since 2022 and after. For those of you who know us, when we were part of Danaher, group of customers, group of companies, and we were trying to kind of transform the business. Most places were flat to decline, and our average EBITDA was mid-teens, and maybe we were lacking the sort of capabilities, run iOS, aligners, other pieces. And despite the fact that we have a significant number of brands being part of a huge organization is extremely successful. We were not getting the attention and the need that we have, applying it to the industry that we were in. If you look at the portfolio, if you look at what we have at the time, compare that to the average growth of the segment that we were applying in that I'm sure you're familiar with the W-A-M-D-R weighted average market growth. At the time, we were in the low single digits, given the fact that we have significant instrument business, treatment unit. And that would -- and we hadn't done really much of an M&A for about 3 years, 4 years prior to the separation. In the past 14 quarters, we have gotten this business to be mid-single-digit growth. If you add up the last 3 years, what you'll find out, we are about 4% core growth despite of challenges in COVID, where we have been dealing with in Russia, China, other places. We got the EBITDA almost 450 basis points of improvement in 3 years. I remember when we were talking to everybody, Howard and I talking to a lot of people, we committed to about 50 to 75 basis points of margin improvement year after year. We have done that in the past 3 years. And we really changed the portfolio to a low single digit plus. Right now, our exposure to the market to the segment of the market is radically change. As you know, we kind of walked away for about $150 million business in the first 18 months, and then we sold about $400 million of our business. We added 3 acquisitions. We changed the dynamic organic growth, made significant investment in various segments of the business that was growing. We have moved the portfolio radically different to a different place. Over 60% of our business is direct now. I want to give you a picture of what is this going to look like in the next 3 years. We have made a commitment by 2026, we're going to be high single digit. So project that by segment, you will see that, that is a road map of reality that is going to take place. We think -- we are aiming at about over 20%, 2.5% EBITDA by 2026. And we see our way through a series of internal cost improvement activities as well as the portfolio changes to get there. And we continue to shift the portfolio step by step, getting ourselves to a place that over 70% of our business is going to be direct. And we're going to be positioned in high-growth, high-margin part of the industry. This task formation is built based on EBS, the leadership, the capabilities that we have. And after 3 years of being public, have this confidence being humble, but the confidence that allow us to continue to step and repeat every quarter to get to where we need to go. I want to talk a little bit about the industry, why I mentioned that we really like this industry. This is my year 8 being in it, and we spent tremendous amount of time talking to customers last year. I'm not exaggerating if myself, my management team talked to about 1,000 customers one-on-one. We traveled throughout the country in U.S. and Europe. We went to various practices. We sat down and listened to what they have to say, what is it that they're dealing with. There's a tremendous amount of excitement about the future of this industry, $350 billion investment under penetration, aging population, focusing a cosmetic and looking better as you go forward. We had sort of a speaker in here earlier in the week. And they said we go only 10 years ago, the highest spending by age was at the age 55 in their practices. Today, it's 65-year-old that they are spending the most amount of money when they go to those offices. So you can see spending habits are extending the age -- extension of the agent population and really fueling this market going forward. Over 2 million clinicians. We were in Brazil at the beginning of the year, we saw a significant number of dentists that they're coming out of universities and they're all really eager to be digitized, to be able to make a difference. And if I'm not mistaken, close to about 300,000 dentists in Brazil. Take a look at it is where is this transformation and transition is taking place? What they see ability to really provide access to a large number of people that they do not have that capability today. And these people are coming in, excited, want to make a difference, and they really want to see a variety of different form or shape. We would have asked us 5 years ago what the future of the industry looks like from a provider, these single practitioners and DSOs, what we are seeing today, group practices, group of 5, 10, 15 coming together, building differentiation in various places in downtown Chicago and Raleigh, North Carolina, in Dallas, the carbon niche, the providing services, self-service that is truly differentiated. We're trying to learn from that transformation adjust and enable it, enabling that movement going forward. About $75 billion spend in office and in lab, buying product, getting services and a large number of providers in here. And every one of those providers also seeing opportunity to be able to really make a difference going forward. The number of deals, the IPOs, early investment acquisition really has accelerated in the past probably 2 or 3 years. I think COVID has done anything, has made this industry to become really visible. It's not recession proof, but it's recession resilient. It bounces back pretty quickly because people see this need for dental. They understand that there is a linkage that they want to spend money in it and then see the momentum. Been through all of these discussions that we have had, one of the key things that stand up for us is parents do not give up an education as well as dental care for their kids. And that's something that has been there all along, and it's just getting reinforced as we go forward. So these trends of increasing investment is based on realities of what is taking place today in the industry. The resilience of this market is, as I mentioned, is a combination of oral care and overall care. Under treatment, there is significant amount under treatment, and there is an education. There is education across the board, for example, rather than using 3 unit bridges that implant is a much better treatment as we go forward. Insurance coverage, even though challenging is adapting and changing. People are finding ways to provide support to their patients so they can choose online, on time and make those decisions in real time before they leave. And we really believe that there is a tremendous amount of under penetration that you can do through education, financial services as well as making visible the capabilities that providers as well as DSOs and others can bring to the table. I want to talk a little bit about these 2 segments because it's really important when we talk about the long-term growth of the industry, our assumption is that about almost 5 billion people in the world that have NAP inclusion. They can use some level of support, some level of help. If you take a look at it despite of all the challenges and all the movement that we have seen in the last 10 or 15 years, over 20 million people, they got treated last year, 20 million cases when there is an opportunity for over 500 million people to get that treatment. So if you look at the bracket and wire and clear aligner, there is still 2/3 of this market is bracket and wire. I walked to one of the training room yesterday, site by site. Damon Ultima on one side. We have a Spark on the other site. Both room are completely full. Dr. Daman is standing out there, talking about the next generation of Daman Altima, why it is so important, treatment that it offers and then you walk to the Spark treatment, a significant amount of excitement about possibilities and a clear aligner. There is room for growth. There's significant opportunities and both of them play a different role and in combination, you can give people optionality, what to choose, how to treat patients, what is the best course of action. We've talked about this a lot, but I want to reemphasize it again. The clear aligner is an awesome industry. We love what is taking place. Bracket and wire is not going away. We continue to see tremendous opportunity in that space, continue to innovate, continue to build a network of support people around ourselves, and they are championing the cause of making people live longer, live better. Let me move to the implant side, about 4 billion people worldwide have missing tooth. You take a look at American alone, above 65-year-old. It's a significant amount of undertreatment. A lot of people have gum diseases. They can't chew their food. Only 5% of these 4 billion people, they even look for such a treatment. And then all in all, less than 20 million people get implant. There is an opportunity to really teach people, simplify it and make access available, digitize it, give people an opportunity to have a better life moving forward. We think there are 25 million titanium screws are sold every year. We think those are placed on less than 20 million people. You break that by geography, you're talking a very small number percentage of the population worldwide, less than 0.5% of people that they have that need, they're getting it. And I think this market has significant growth opportunity because of this underpenetration. So how did it change both of these? How do we change that dynamic? Education, digitization, personalization, democratizing this industry moving forward. That's what we have been talking about for quite some time, and we are beginning to see that transformation taking place going forward. I want to talk a little bit about the industry. We talk about how do we shift it, our portfolio from low single digit to low single-digit plus and continue to do that moving forward. You add all of that, that's about $26 billion, $27 billion market. On top, how we report is a specialty product and technology, bottom, equipment and consumable. Let me sell from the top, $11 billion is built based on implant based tooth replacement. So why do we describing in that format? The titanium screw is a small part of overall treatment. -- walk-in, the first thing is about diagnostics, then planning, then the actual surgery, then putting bone graft and biomaterial, then getting temporary, then getting the permanent solution. And there is a whole set of product from iOS CBCT to drill in it to ex now for, doing this kind of guided, navigated and now with 3D printing, being able to print that in office. That combination, that end to end is about an $11 billion market. It's growing mid-single-digit plus. There's significant changes taking place. Our approach is we want to pull all of that together, and we want to be the #1 in that space. We have the capabilities today, and we keep building upon it, through partnership, through investment organically and through acquisition to be able to really provide people a solution that doesn't exist today. Bits and pieces of it are in place, but we want to be able to offer that in an incredible easy format. People can select in an open architecture environment that is not locked that is not blocked. Talk about Orthodontics about $6 billion market, $2 billion bracket and wire. Low single digit has been like that for almost a decade. We continue to take share. We will have over 20% market. We're growing mid-single digit for 3 reason innovation, customer support network that we have created as well as 70% of this business outside the United States. High-growth market play a really important rolling here. As you know, we are a newcomer under aligner. We went from 0 to 100,000 cases, and it took us 3 years to get there. 100,000 to 200,000 cases in less than 9 months. We passed 300,000 cases last year in 5.5 months. We've got an incredible product. We've got a good support system around it, and we are focused on Orthodontics. That's a segment that we are focused and we want to make them successful moving forward. This market, 15% to 20% growth, we think that has legs under for years to come. On imaging and diagnostics, the 2D, 3D is about a $2 billion low single digit, has a little bit of ups and downs depending on the interest rate and recession. We're the #1 player in that space. And we think there is significant opportunity for that transformation to CBCT, 3D, AI capabilities and then a newcomer in the iOS side, about $1 billion growing [indiscernible] penetrated again. Now we have an opportunity to put a package together a bundle from end to end, but also sell it independently. About $7 billion consumable infection prevention, Resto, Endo, a variety of different capabilities that people use every day. Low single digit. We have been performing well, and we think this is a market that we want to be in, continue to provide support and services to that segment. Great brands in this space and continue to shift our portfolio to be in a higher growth segment of the market. Stampen market evolution is something that we've been talking about for quite some time from analog to digital. From pain management to prevention to prediction. That's the transformation and transition that we are going through. And what it is going to happen in here, the more people become comfortable with digital capabilities with data management, AI, the better they can predict what is going to happen, what level of training and support to provide and how to treat patients faster, quicker. Just give me one example of a Damon Altima. The number of visits has reduced by almost 50% for the same treatment. Why? Because we have learned and the doctors have learned to provide better level of support, use digital capabilities, not to have everybody coming in, sitting there waiting. Average orthodontics that we talk to tell us that they are seeing 2x more patients now before COVID. Because of some of the technology that they're using simple technologies, like just using your iPhone or being to provide support to the dentist so you can get better treatment remotely. We spend a lot of time trying to figure out what is the north star for us. Where do we want to be? What direction do we want to take this company and what contribution do we make to this industry? We think we can play an important role in digitizing it. digitization to us is about taking waste out of the system. Think about EBS and continuous improvement. When we walk to a dental office, the things that we notice is there is tremendous amount of manual work, various systems, moving information from one place to another. If you digitize it, you would have ability to really start taking data, predict, plan and do a better job. And you take your most valuable resources, you spend time with the patient, you personalized treatment. It gives you an opportunity to really change the dynamic of how you treat patients if you have data and analytics in front of you. If you do that, you can democratize this industry. You can provide better support, more prediction, more capabilities across the world. Dental industry is ripe for transformation, and we think that we can have an important role to make that transformation happen over time. I want to walk you through various segments, give you a little bit of a perspective. When you look at each segment, how are we differentiated? What is different in Envista versus what is available out there? In the case of diagnostic and imaging is all about customers, customer centricity. We get over 1,500 daily calls with customers, providing support to doing training, solving problem. IoT is becoming norm in here for us to dial into the system, to provide help to provide support. We have really changed the dynamic of a quality by a 60-day guarantee by the product. If you see the benefit of it, keep it. If you don't send it back to us or help you move to a different place. That's a clear indication of focusing on the customer. We've got an incredible installed base, 165,000 units. Think about these as sensors in a big network that you can collect information, you can provide insight, you can provide training and over 50,000 Dexus installed base of software. It is not a sensor. It is a system that people use to operate how they do things. And we are in the process of building a digital ecosystem, connecting all these devices together in an open architecture that you can use any modality that you want collect information, make decision on it, move it to the pan. Simplicity is the key word in here, and you want to be able to walk in to make decision, do things really simply. Moving to our implant base tooth replacement, Patrik and I had an opportunity to go to Karstoga last year. Take a look at the birth place of implant, where it comes from, how it got created. We follow BrandMa footsteps. Say, how did he actually created this, the process that he went through. It gives you tremendous amount of courage, but also make you really proud be the custodian of that brand, being able to really take it to the next level, again, about customers. We have over 1,300 resources. We don't see these people as sales rep. We see them as a consultant. I've been to offices. We have seen those. Our reps sitting next to the doctor, helping them to all on 4, teaching them how to use technology. That's the difference of our commercial capabilities. We're building this all on 4 center of excellence. People who haven't had been able to really show their food for years they go through this process, they come out and new life, new smile confidence is being built. Customers are beginning the impact of what we do on a daily basis. Our training and education is just incredible. And we are building on it. There is a lot more to be done. Example of it where we are today. Last year, we trained over 30,000 people. COVID actually taught us that we can do things a lot different than what we have done before, in variety of from former shape, a whole set of relationships with universities. We started at the Boston universities, and we are extending it. Lexus is leading our university program in here, top 10 universities in U.S. and Europe, building 5-, 10-year relationship that we can teach help coach people to become better oral surgeon, better practitioners and innovation, a really important aspect of this. Put it all together. Last year, we placed over 1.5 million implants. We think there is an opportunity to really change the dynamic of this industry through innovation, through training and education and through providing that consultative setting as we go forward. Talk about auto, we have been steadfast that we're going to continue to innovate on this back-on-wire area. And we have been hopefully been able to prove that there is significant opportunity in here. And our approach has been the same focus and the key customers. We're focused on orthodontists. We're not in a direct-to-consumer business. We want to make sure the people who has this mentality of being there, the reputation is online. They're going to be there for a long period of time that we are the champion of their cars. We do a significant amount of support in here. Training and education over 50,000 people. It's really interesting to see this how this evolve specifically on the part bring a small group of people. We've talked about it before, trainer, teach them, then go to their offices, train the staff, take the next level. We have been doing that for the past probably 4 years country-by-country, going to one geography to other geography, cheap, expanded. We want to make sure that first impression is a really positive impression. So they see it, they value it and they stay with it. We got over 500 salespeople and a tremendous amount of network of support and training and education around an innovation side. Eric is going to talk about this, but we have ramped up our innovation and bracket and wire, while others may have thought a different view of the market, we just continue to innovate and make a difference. And as Spark side, you have seen the growth. There's a lot more to be done in here, over 2 million cases last year, and we think we can do a lot more as we go forward. And the consumable side, we have a broad set of experience sense and expertise around restorative, endodontic, infection prevention or scoptics. In these businesses, they're almost 90% of the dental offices worldwide. You see them every day People know it. People know it by brand. They trust it. They use it in an ongoing basis. It gives us an opportunity to demonstrate what is it stands for through the credibility and quality of the product. And we continue to innovate in here, provide better support, better service but also extend the access in right of former ship, expanding our go-to-market strategy in different geography. What drives this? What is it that makes us different? Is this power of EBS. We talked about this, the legacy comes from Danaher. We took those capabilities from Danaher, all of us, the management that sits in here, that's where we come from. That's the knowledge and experience that we have. And the model is actually a simple model to describe a little bit different to execute. But it is about G&A, taking expenses out, not just pure cost cutting by continuous improvement. Take a look at every process. A management team and I went through 4 days of training in January. We took 4 days. We went to factory after factory on to the floor. We'll look at every one of what we call QIP, quality, delivery, inventory and productivity, safety, rejuvenate our knowledge of EBS answering question. Then we go to finance, HR, try to see what account payable look like, account receivable look like, try to figure out how do we improve it, how do we take rate of the system. What that does the costs out of the G&A. You take that cost out, improve your gross margin. We continue to make investment in R&D, in sales and marketing. You see your core growth continue to go up. You see the EBITDA continue to go up. When you get that momentum going, you have free cash flow that you can put it to work, then you have this machine, domino effect, built in on itself. And we can step and repeat it day after day. It has to be in our DNA. This year, we have decided to take our top 200 people. We're going to go on to refreshment of EBS. Round 2 took place last week. We took another 25 people. We took him to Mara. This is one of our factories that does custom prosthetic -- 2 weeks from now, we take the next group, repeat that continuously. The team that is sitting here is actually teaching it. They're teaching those courses, telling people about standard work, telling people about daily management. We're learning, teaching leading it and continue to make that transformation happen. I want to talk a little bit. A lot of you know about EBS and the heritage of this. It started with Toyota production system. When Danaher started forming and they had some serious quality issues, Steve and Mitch have talked about this. Larry explained that to a large number of people and Tom and Rainer and others have carried that forward. It's about the genesis of a continuous improvement that we started the Jake Brake solving some very specific quality issues and then start building on it. As we acquired companies in Danaher, we took the best of various places, maybe part that is circular, get better and better and better over time. From the time that I joined Danaher 15 years ago, the first 13 weeks, I was in immersion, I went through factory to factory to factory, a work in production on road with the salespeople, not even in an industry that was supposed to be water [indiscernible] instrumentation. And you saw and you have this vacant but that you can improve things continuously day and day out. In various formats, in value segment, you see the impact of how do you do things a lot better by being open, by being curious, 1 manufacturing floor and move to the sales organization over time, funnel management, daily management and then in R&D. Innovation is a process. And if you do that process, the chance of success is far greater, far higher. When we separated from Danaher, we took a lot of that knowledge and experience. We adapted to the reality of the dental market. We coined the term EBS and wise business system, and we started adopting it to the dental market and use some of the fundamentals, but a focus on 3 specific segments. It's about Lead. Lead is purely focused on standard work, improving the day-to-day activities, focus on innovation and growth, both product development and launch as well as daily management in the field and leadership. A key aspect of this is about leadership. You cannot teach it and not practice it. It has to become part of your DNA. You have to believe in it in order to teach it, to execute it, to move it forward. One of the thing we wanted to do today, we wanted to show you leadership in action. A key part of Danaher model and now in this model is to bring leaders that they have that type of a mindset, and we do it in 3 different formats. We hire people from colleges, and we have a couple of examples of it in here, develop them through what is called GDP, General Management developed program, moving to a variety of different roles, they learn, they become an expert and then continue to extend their capabilities as they go forward. Through acquisition, a lot of our best leaders that come through acquisitions. They learn the industry. They already know the industry, they learn EBS and they become practitioners and teaching other people going forward as well as recruitment, recruiting the best that there is out there. So we show you examples of all 3 today. So you get a little bit of a feel what that leadership model look like? Was that evolution over time? You can talk about EBS -- but you have to see the action. You have to see how that works. And you have to see it manufacturing and corporate for in the field and demonstrate itself in a format that a continuous improvement is live and well. Anywhere you go in any of our operating companies in any of our businesses, you will see 8 core values, top of the list, shareholders. And it's about growth, margin improvement, working capital and ROIC. We use ROIC to describe the impact of acquisition by customers on time, delivering quality and about employees. It's about retention. Internal theory, we like to promote people, 75% of new role. We'd like to promote them from the day. It gives you an opportunity to build this DNA, to build this momentum and get it better piece after piece as we go forward. So let me hand it over to the Head of our orthodontics, Eric Conley, and he will tell you a little bit about his own history. Thank you.

Okay. Thanks, Amir. Welcome, everyone. Good morning. My name is Eric Conley, as Amir mentioned, I'm the President of our orthodontics businesses, and I'll also run our EBS office, and I'll explain a little bit of that in a minute. First, I want to do is take you back in time to give you a sense of my journey being acquired into Danaher of how I came into EBS and how I developed over time. For 10 years before I joined Danaher, I did various venture-backed start-ups. Over 10 years, I did 2 venture-backed start-ups and help run those. And as CEO of one of those companies, what you find is you are the center of every single problem that happens. The entire organization looks at you for answers, you have to make decisions every day. If there's a problem, you solve it. If there's an opportunity in front of you, you go get it. And because of that, you're making decisions all the time. All you're trying to do is move that business forward, survive one more day, get to the next months, get them next year in order to grow and build the business. The challenge with that is, one, it weighs pretty heavily on your shoulders every day. But the other thing is you don't always have the best information to make decisions. A lot of other people should be doing that problem solving. And so when my business was acquired by Danaher in 2010, I went through a similar immersion process as a mirror. So I spent time in the DBS office, learning our tools, learning how to run businesses through fundamentals of DBS. And then I went on a benchmarking tour. Talk to a lot of companies and solve how they operated. And what I saw that really was impactful for me is that all levels of these companies who had the DBS culture they've understood their businesses. They're measuring KPIs that tied to the needs of the business. And they're using daily management to track progress every single day. And so they knew where they were winning or losing. If they're green or red, they knew it. And if they were red, they proactively dove in, understood the root cause of a problem, worked on countermeasures and got themselves back on track through daily management. That was hugely impactful. For me, seem an organization who's solving problems without the President or the CEO asking them to go do it already on top of it. That was a big difference for me. I was sold. So I came in and I wanted to learn how to run businesses through DBS and build that culture. And so fast forward over time, got the opportunity to run larger and larger businesses inside of Danaher and then the first span-out Fortive. And I got to use a lot of these tools. I got to exercise the tools, develop tools and win through them and got that great experience. And so when I joined Envista in 2020, I came in to run to the orthodontics businesses, but also Amir asked me to run the EBS office, which is a group of experts that work across the organization to implement tools, build the culture, make a difference. And it's a privilege for me to be able to do that and work with a lot of great leaders to make ourselves the best we can be. Our orthodontics businesses, we play in a $6 billion professional orthodontic space, as Amir mentioned. We're trying to grow and change in that industry to be the #1 player, the #1 provider for orthodontists worldwide. And we want to do that while also driving our profitability, become healthier and healthier business over time because we want to throw off cash for Envista to be able to invest in acquisitions and other growth areas. We use EBS tools to do this every single day. A couple of examples that I wanted to highlight here is as we transform this business, you can imagine the rapid change, especially with Spark that we've done. We built a 90,000 square foot factory in 9 months from putting a shovel in the dirt to shipping product with the use of a lot of different tools like visual project, program management, daily management, a lot of great stuff there. We continuously improve our labor productivity rates. We do that across every single business. Just last year in Spark, we improved our labor productivity rate in our factories by 38% through the use of standard work, process mapping, visual stream mapping and improving through Kaizen those tools every single day, those processes every single day. We also, as Amir mentioned, have accelerated our hardware and software release cycles from one release every 6 month to 1 release every 2 months. That's important in the dynamic space. And we use tools like product planning and agile software development in order to be close to what our customers' needs are and make decisions that impact their businesses every single day. One example that you might find particularly interesting is how we use EBS tools to drive the growth inside of Spark. And if I take you back 4 years, -- the picture we had at Spark was great product, not a lot of customers, except a few early adopters that we tested with, right? And so -- but if we could take advantage of Ormco's large customer support base, large sales and service organization. And so the first thing we did was we needed to build a funnel. And the way we thought about growth, and we still do today is the only way we grow from that base is to add customers, right? We need to take customers from a competitive account, bring them over to Spark. And so the first thing that we did was we used a visibility tool. So that is take CRM and identify every single customer we could possibly have now and in the future in the CRM. The next thing we did was segment those customers based on a number of factors. Are they already Ormco customers or not? What competitive products are they using? And what are their volumes? What are the characteristics of those practices where we know and test, are they more willing to switch to a new product than others. We use that information to prioritize. Next phase is how do you convert them through the funnel as fast as possible. And we use our funnel management tools and experimented around a lot of different ways to do that. One of the most important things we did is we discovered that if we build a large clinical education capability through partnership with a lot of doctors out there that would give instant credibility to us and our products because it's doctors selling doctors, reinforcing the value proposition of Spark right out of the gate. So we built a large global community very fast in order to help us do that, and we watch the conversion increase through that funnel. Last step after that is we take a doctor who wants to join Spark is ready to convert, and we make that onboarding process great. So in the beginning, it was a pretty clumsy process. It took several weeks, a lot of back and forth and doctors and their practices, they just wanted time for that. So we went through a number of Kaizen events. We got very close to the workflow of these practices, understood their needs, what questions they have, and we can anticipate that. And we fully developed a process through these Kaizens a few years ago that took a process that was very long, a little bit clumsy and now we can onboard customers in a matter of hours over the course of a couple of days. Great process. Doctors love it. Their practices loved as we onboard them. It's made a huge difference. And you've seen the results. We almost doubled our active customer base just in this past year. We've had triple-digit growth up to date. And going forward, we're convinced we've got the right processes in place. We'll continue to improve them to drive above-market growth long into the future. Okay. With that, I'm going to turn it over to Patrik.

Thank you, Eric. I'm Patrik Eriksson, I'm the Senior Vice President and also the President of Nobel Biocare. I started my journey. I've been over 25 years in the dental industry, and I started my journey in some of our competitor companies. In 2012, I was very attracted by coming over to Danaher because of DBS and the structured way in which Danaher built a phenomenal execution record. I came just come as a seed hire into the business, which meant I really didn't have a real job. It's undefined what you do. I also went through a 13-week immersion, and I spent 7 of those in factory floors around the world to learn about the DBS on the ground, standard work and other daily management tools. The knowledge I got from that led me into my first opportunity where I was asked to run our Southeast Asia business for Calvo. At the time, we had problems with growth, and we implemented some simple rules in our commercial business there, leveraging standard work, daily management and rigorous follow-up. It could turn that business into a 30% growth engine as a result of that. Then I had an opportunity to become the President of Nobel. -- sorry, the President of Ormco, we leveraged EBS tools to prioritize what R&D projects we should really double down on our focus on, and we did that for about 4 years when I had a chance to move to Kovac. As you know, Amir has covered this as well on the portfolio management journey. We leveraged various DBS tools to an EBS tools to actually track what should we be doing? How should we cluster and group that part of the business and then break it apart in the pieces that we have today. Today, I'm leading Nobel since 3 years ago. We're doing the same thing here. We're on a transformative journey. If you look at the screw part of our business, it's about $4 billion, $4.5 billion or so, 50% of it is premium, and we're the #2 player. Our goal is to be consistently grow above market in this part of the business. Our biggest opportunity is around center gram customer experience and how we can make the product on-time delivery better, we can make customer experience better and how we can do more coverage on our sales force. We're implementing those tools to actually execute all of those things. My journey on this is I came from an environment where we didn't have a whole lot of structure in EBS, had an amazing immersion. And to me, it's been fantastic to be able to use the same tools in all the different companies I've been involved in in Danaher and in Envista because we run them the same way, positive deployment, daily management, problem solving like Eric mentioned, it is exactly the same standard work across the board. As Amir mentioned, all of us teach this when we just did it last week in outside of New York, and we're certified in many of the tools that we have. We have a couple of examples where we deployed EBS to drive cost out, to drive productivity. We've removed a lot of scrap in our operations. We've also reduced the cycle time for inspections by over 63%. And we applied EBS tools in one of our regions to drive growth where we expanded over 800 basis points of growth. I would like now to give you one example of this customer journey. We do a lot of different things to improve the customer experience, and one example is centered around really reducing waste and saving money at the same time. We ship millions and millions of packages out of our plants every year. And they are sterilized. They're double sterilized and there's a lot of packaging that goes into this. Our customers gave us feedback that we probably can do is simplify because there's a lot of waste coming out of it, and there's a lot of process that they need to do prior to surgery to get to our components. So we wanted to help customers be more efficient doing that. And at the same time, streamline how we take care of the internal domestic supply chain. So we changed the way that we did the labeling and the packaging. And our method of getting there was to first start to use one of our tools with voice of customers. This is a very powerful tool that helps us go out and actually solicit from customers. The most relevant and the most impactful changes we can make to still that down and impact matrices and select the ones that are really making a difference and then deploy those. That becomes the input into the next process around experimentation. So you take the hypothesis coming out of voice of customer and you run experiments to really understand what works well and what doesn't work well. When you do that after a number of iterations and the experimentation is a very powerful tool. You have a hypothesis, you go out, you test it, you try to on it with customers, you do prototypes and then you move on to the next step and you measure the result, the ones that at works, you scale them. As a result of this, we were able to reduce the cost by over 30% and the material reduction was over 15%. So with that said, I'd like to hand it over to our next speaker, David Armstrong.

Thank you, Patrik. So good morning. David Armstrong. I grew up in this company. So I started in the dental platform of Danaher in 2010. And the reason that I joined Danaher was because of the Danaher Business System. So I'm passionate about continuous improvement in both Danaher and Envista allow me to drive and teach continuous improvement every day. I came through our general management development program, and I now run our consumables businesses. The largest brands within that are Kur and Metrics. Together, these businesses generate over $500 million in revenue every year. Where my journey started? I started on the manufacturing shop floor and in the warehouses in North America, learning the basics of the fundamentals of the Danaher Business System around standard work, daily management, helping our factories in the U.S., Canada and Mexico achieve the targets in quality, on-time delivery, inventory and productivity. So after learning those fundamentals and implementing it in North America, I then moved to Switzerland and do the same for our factories in Europe as well. And in Europe, what I was surprised by was how these tools translate across cultures and across languages. That didn't matter if you're in Switzerland, Italy or Czech Republic, you were able to drive impact by driving with these tools as well. By the age of 28, I was running an entire factory. And I did 4 years in operations in Europe driving impact, both living in Switzerland and the Czech Republic. After that experience, I moved over to Germany, and I ran our service business for large equipment. There, we were having challenges both in customer service and technical service. And again, implementing the tools, the fundamentals of EBS around daily management and standard work, we're able to stabilize the situation, be able to drive results in that service part of our business as well. After that experience on the equipment side, I then move back into consumables and led our sales and marketing organization in Europe. And there, again, another realization of these tools were not just for our operations side in terms of manufacturing, supply chain and the like, but they also are very, very relevant for our commercial side as well. What I'd like to do is I'd like to share with you an example of these tools coming together both for operations improvement as well as growth at the same time. So very specifically, over the last 3 years, we have, for our restoratives and endodontics businesses, we've reduced the number of manufacturing sites from 7 to 4. And while we did that, we also gained market share. So how did we do that? So on the manufacturing side, we did 3 things. One, on the sending sites, we made sure that there was very good standard work and daily management in place before we touch them. Second, same thing for the receiving sites, making sure that the receiving sites had very good fundamentals in place, again, around daily management and standard work so that they were ready to receive the work that was coming. The third piece was having a plan in place that once the work was moved, how are we going to continuously improve it. And so through this process, as we are moving manufacturing, we actually got better towards the customer. We improved quality. We improved on-time delivery while reducing our overall structural costs. So in parallel, we wanted to make sure that we didn't affect the customer that we didn't create any risk on the top line and how did we do that part of it. We had a very significant shift in 3 ways. The first was around moving from a sell-in focus to a sell-out focus with the realization that we only gain market share when the dentist buys more of our product, not when we have more of our product on the distributor shelves. The second is around the role and the way in which we are working with the distributors. Our distributors are absolutely critical to be able to get our product to the end user to get it to as many end users as possible. So we started to study and using standard work around the commercial capabilities of our distributors, which for many of our distributors, they have tremendous capabilities, but we weren't utilizing all of them. So creating standard work, creating daily management with our distributors to drive sell-out to gain market share together. And the third one was about how do we focus geographically within the markets where we are focused on. And we were using what's called a heat map. So going down even to the ZIP code level to understand where the opportunities were, tracking those on a daily basis in terms of how we were closing them and getting better and better at that every day. So a lot of the experience that I talked about were from -- was from my time in Europe. And now looking at our largest market in North America, transferring those and continuing to get better using the tools in North America to continue to drive growth. With that, I would like to hand it over to Drew Weightman. Drew also came through our general management development program. And interestingly enough, Drew and I went to the same high school, but we didn't meet until we were both at in this stuff. So Drew, please.

Thanks, David. I'm Drew Weightman. I'm the President of --thank you, President of Implant Direct and of Alpha Biotech. I started my career in sales and coming out of business school about 13 years ago, I had an opportunity to join Danaher. And the key appeal of Danaher to me was the Danaher Business System. I wanted to be not just working harder than the other guys. I wanted to be working smarter and systematically to create competitive advantage. So I joined the non-dental portfolio within Danaher, specifically Videojet and the Product Identification group of businesses. And that was really well known at that point in time for development of process discipline in the Danaher Business System. The fortunate that the Danaher Business System University, the training center internally was located at my operating company. So at that time, I held a variety of leadership roles, including Danaher Business System leader and commercial and product leadership roles. But where Danaher was in the DBS evolution at that time was really about thinking through and piloting the DBS tools taking that from lean manufacturing to apply to our key growth and commercial challenges. And so that was really invigorating for me an opportunity to lean in and participate in that development. I used the common DBS framework to execute a transition from that part of the portfolio over to the dental platform in 2018 and participated in the spin of Envista subsequently. And at Envista, I led the Orascoptic business. Orascoptic is a business you'll see out in the trade show booth where we make the magnifying loops, the eyewear that a surgeon would use to magnify and illuminate the surgical area during their procedures. And the -- there were a couple of key things that we needed to do in that business. The business was -- it's a good business. It was growing very modestly. And this was a great opportunity, perfect application of our EBS tools. The things that are key in that case. First, we applied transformative marketing for disciplined lead generation. Second, we'd apply another one of our EBS tools, sales force excellence to segment the market and then to define our sales territories. And third, we use our product development process. Eric mentioned this earlier called PPG. And we use this to allocate -- systematically allocate development resources and run our development projects to revitalize that product portfolio. We took that business from something that was growing very modestly to double-digit growth, which is well above market. And the key here with EBS, it's not just that we achieve that. But if you look at that business now, we have what I think is probably the highest product vitality, the most new products that have recently come out and are in the pipeline. That business has ever had. And that gives us some confidence that we can -- much confidence we can continue that journey. And Tanya, our new leader for that business in the back row here, we'll be carrying that forward. So I want to transition here. No good deed goes unpunished. So after that experience, I have the opportunity to jump over to a couple of our implant businesses where we see a lot of potential. And frankly, we want to go get it. So there's clear opportunity within Implant Direct and alpha Bio for us to use those commercial tools to accelerate our growth, but there's something that we have to do first. And I want to share where we are in this journey. We know that -- I want to take you to Implant Direct. We know that in implant direct on-time delivery of an implant or a prosthetic component is a critical customer requirement. Oftentimes, there's a patient, a surgery that's scheduled or waiting. We need to deliver that product the right one at the right time. That is -- frankly, we weren't doing that very well. If you backed up a year ago to -- if we were sitting in this room 12 months ago, you would have seen that less than -- about 1 in 10 orders to customers, we delivered late. It's not acceptable. So we have opportunity there to -- well, this is a complex problem. So why was this the case? We have to coordinate a number of different functions across a large portfolio. We have more than 1,000 well more than 1,000 unique SKUs, many of which are medical devices. And we need to coordinate material planning, procurement, manufacturing, sterilization, distribution, also have the right product at the right time. So I wanted to use this as an example to share with you how we would solve a complex problem. We use what's called PSP, a problem-solving process, and this is a structured format we use across our businesses to use Pareto to identify where is the problem and then use 5 whys root cause analysis to start to unpack the root cause or root causes of the difficulty. In this case, we have such a complex problem with so many different teams involved. We turn to kind of take that up a step, and we turn to what we call live dive. And live dive is where we make that an iterative process that in this case went for months. Dive stands for define, investigate, verify and execute. We pick a location might be in that factory. It might be a virtual location where we're coming together bringing evidence and thesis and then experimenting with countermeasures to see if we're on the right track about the root cause of that problem. Next step, we turn to Kaizen. Kaizen event is where we stop the normal course of business. We take stakeholders from different functions. We lock ourselves in a manufacturing cell or a conference room and we build process muscle to start to address that root cause that we'd identified. And then the fourth step we follow is visual management or daily management. That's where we run the process. We take a scoreboard. We put it up on the wall, and we establish a cadence daily or weekly, where we'll assess are we effectively running the new process that we designed in Kaizen. So our standard is 97%. We were down 89%, 90% in our prior state, and we're now consistently above that level. So EBS works in these applications. The thing that is the key here, though, is not just solving the problem, but building that process muscle that we can do that sustainably. There's a term that we use in EBS. It's really essential. It's Kaizen. And Kaizen is a Japanese term it means continuous improvement. And that's really the beauty of this. This journey here doesn't end. We focus on just getting better and better and better .

I wanted to give you a little bit of a perspective on a couple of aspects of EBS, the leadership that matters that drives it examples in the shop floor and lean talk about growth. both on product development as well as commercial execution and see that in action. We have built an organization that is well on its journey, focus on the most attractive part of the dental, an orthodontic implant tooth replacement, imaging and diagnostics, restorative and Endo, focus on the key movers and those that they're change agents, DSOs, group practices, specialty groups -- we're adding digital workflow and digitization in here, open architecture building, adding to the portfolio with taking advantage of large imaging installed base start consolidating a lot of these towards an infrastructure gives you better decision-making, use M&A as another lever to manage the portfolio and put that specifically when we are under-indexed or is changing rapidly, value implant, prosthetic AI and expanding our presence in different geographies. Based on our culture, the circle, the 5 pillars, leverage EBS to build market leadership. This is a journey. It's a journey over the next decade, the first 3 years, we have been able to build that foundation around the culture, bring DBS, make it part of our DNA. It starts showing growth and margin. And now it's an opportunity for us to accelerate that as we go forward. We want to build a legacy here. This management team is committed in changing this industry. We made a commitment last year when we were together around changing the business from mid-single digit to high single digit. This is the journey that we're going to go through every intention of executing that. There are challenges along the way. We're acknowledging it being wide eyes, very open, sober about it, but making sure that we continue to make progress to move toward that other years of a high single digit. There is no limit in here. We're not putting a limit on it. We wanted to have a kind of a North Star, a gold post that, that's what we want to do and have a road map that allow us to make those decisions. We have committed to 50 to 75 basis points of margin improvement. The first 3 years -- we have been able to do that. We're going to continue to deal with some of the ongoing challenges around VDP, interest rate changes and others. But in the other years, that 22.5%, we feel it is achievable. We feel like we are marching toward that end. Again, that is also is not as sealing. But we wanted to build a model that allow us to get to that point over time with a double-digit growth and earnings per share. We're focused on customers. If we make a difference in how customers operate, make them more productive, become part of their process, if we continuously improve what we do internally. I think now we will build that model that we talked about earlier, organization that is based on culture of improving quality of life to build a better industry as we go forward. This is an awesome industry, best job I have ever had. Coming to work every day, feeling that you are making a difference. You're making a difference in patients' life, you're making dentists a lot more productive, incredible team that I'm really proud of, going home, coming back rejuvenated, try to do that every day. We have built a company that we can be truly be proud of, and we are just getting started. This is just the beginning of that process. This is a significant opportunity for us to accelerate our growth, accelerate our margin and use M&A as another lever to build long-term value for shareholders, for employees, for customers and for patients. Thank you for being here, and we're going to open it up for a little bit of exchange Howard... Patrik... Eric, right?

I just need you to use a microphone for people that are online.

Elizabeth Anderson from Evercore. Can you talk about maybe a little bit more specifically the implant growth as you sort of get to this high single-digit growth rate that you've talked about in 2026. -- sort of specifically, what are you doing in value implants and how that growth is accelerating and then in the premium segment?

Yes. So as we talked about, it's about a $4.5 billion market. And if you look at the premium side of it, we are really in a great place. So Patrik and the team have done in the past 3 years, we talked about changing the customer experience. That was our original plan. We started that in Europe. We built it, we call it Envista product center. We hired about 370 people in a 2-year time period, we consolidated the customer management, consolidate our account receivable account payable, so change dynamic of support in Europe. And the outcome of that has been 10 quarters of growth in Europe. So that execution model really change the dynamic. We're replicating that in the U.S. On top of that, Patrik and the team have done just a great job continue to put innovation to work. [indiscernible] I'm really serious made a difference in the past couple of years. The percentage of the product that they have that today is....

Normally, it's over 30% of all implants shipped have those services on it.

Better performance, higher prices. So if you look at the Nobel itself combination of commercial execution, innovation allows us to really change that moving forward. Then we start looking at the overall $11 billion market. And what you'll find is we are under-indexed in a few areas. For every dollar of implant is normally about $0.20 of biomaterial, bone graft, regenerative. When we started this journey, we had less than 3% with the 2 acquisitions, Mattress, Orogen, we have really increased our presence in that market. But I think we have significant opportunity in that area to just keep building on it organically and inorganically. While we are the #2 player on the premium side and the value side, as Drew talked about it, $2.5 billion market, growing 7% or 8%. We have a very small share with less than 5%, and we are not present in different geographies. In those areas, it's a combination of introducing our product to some market as we have done in China as well as inorganic activities is the method for us to go to expand our presence. Last but not least, this doesn't end with the implant. It has to do a lot with prosthetic aspect of that.

Just again, it's simple math for every dollar of implant that you sell, there is a $0.20 of prosthetics and our share in that segment is less than 5%, even lower than that. So we can build some of that organically. We need to do some inorganic work, and we need to do some partnership. One of the key things you notice in here, we have a former partnership with the Sprint Ray, put a package together to make sure that people have ability to print things in office. So a combination of organic activities and inorganic, which gives us an opportunity to expand our presence, take that $1 billion, accelerate it, build around it. Our intention is in other years, we want to be the #1 player in that space. And I think we have the capability today, the capital structure that is needed, the partnership that is needed for us to be able to make that transformation app.

Jonathan Block with Stifel. Maybe a couple. The first one, Eric, there's been great recent innovation on the wires and brackets side with Ultima. And you talked about having the process down now with onboarding the docs for Clear aligners you're much further along there. Maybe just talk about innovation with clear aligners. You're selling to the ortho higher acuity cases, young kids can come on board. Is that going to be more of a focus for you guys over the next couple of years now that you seem to have the process of onboarding much more mature, so to say?

Thanks, Jon. So we focus across all of our portfolio, right? And what we see is the focus and the things we need to do to take great care of customers and bring customers on for Spark as well as brackets and wires, there's a lot of similarities. On the brackets and wire side, as Amir mentioned, we're roughly 20% of the market. So we have a lot of room to grow in a market that it's a good market. It's a stable market. And so as we develop those processes for Spark, we're thinking about the entire ortho community because at the end of the day, we want to provide the best possible products across the portfolio for an orthodontist. -- let them choose what they want to do, whether it's for a specific patient and all patients are unique, wires and brackets, Spark or maybe some combination. And so we will continue to develop those products. We will focus on taking share, bringing on new customers to drive long-term growth. And that innovation is a key part of that tied with the customer support and all of the clinical education we're doing across the board.

And then a follow-up, Howard might be for you. But just on the weighted average market growth rate, that slide had sort of the low single-digit to low single-digit plus from pre-IPO, I think, to current -- and some of that's been done by divesting some businesses, right? But then the bigger jump was arguably to 26, where you're going off the top of my head, from low single-digit plus to mid-single-digit plus. Talk to us on how you get there? In other words, is there still more stuff invested today that you could see divesting that would be favorable to the weighted average market growth rate and/or how much of it's going to come from new acquisitions in a higher rate environment and how that's made possible...

Yes. So Jon, I would say that portfolio optimization has a lot to do with that, right? And so we've discarded or sold off some of the businesses that were lower growth and lower margin and replaced it with businesses that are faster growing and better margins as well. We also see market penetration. I mean, Spark, we're still just getting started, right? And we talked about the job that Eric and his team have done. And certainly, we're encouraged by the momentum that penetration is going to continue. We've set out some midterm goals out there as it relates to 2024 and the like. Certainly, we're going to expand there as well. And we're going to continue to look at our portfolio of products consistently. That's one thing that Amir and the management team do on a regular basis. And so no commitment as to whether or not we're going to sell anything. I certainly believe that there are some things to be added. And so as Amir as alluded to as well. And so that's going to help us get into that higher kind of weighted average growth over time.

Jason Bednar with Piper Sandler. Thanks for hosting really appreciate all the focus here on EBS, destine part of the journey here as we get to those 2026 targets. And maybe I'll pick up a little bit on what Jon Block was saying there. It really seems like EBS is central to hitting those that plus EBITDA margin target. I think that's 75 basis points, probably closer to the upper end of that 50% to 75% just based on where the guidance is here for '23. So when we think through '24 to through 26, just maybe thinking more intermediate and longer term, are there chunky moves that you see facility closures, things like portfolio management that are embedded in that 75 basis points? Or is this more a function of continuous improvement in EPS?

Yes. So sure, Jason. I think that it's predicated on continuous improvement. The example that David used today was just Resto Endo and taking facilities down from 7 to 4. There's plenty of opportunities in other parts of the business still. And so we'll continue to explore those opportunities. We put moderate goals out there, and we know that. And internally, we certainly drive for greater -- as Amir said, when we went IPO, we said 50 to 75 basis points per year. I think we've driven over 750 basis points in the 3-plus years that we've been public. And so rest assured that we're going to continue to look at that opportunity. Certainly, I think portfolio and top line and exposure to markets is going to help with that as well.

Maybe just on that, I mean how much of that $50 million to $75 million, can you get just from EBS?

The way we think about it internally is irrespective of top line growth that we have continuous work to be done. And productivity, efficiency gains, that's consistent with our EBS culture, and so we'll continue to do that and drive some of that basis point improvement through that.

Okay. That's helpful. And then maybe a follow-up on the VBP conversation. I know no 2 companies here are the same, but we did have just some recent commentary here from one of your bigger competitors. You both have now commented on VBP in China, the expected impact of the headwinds and also the leakage, expected leakage or lack of leakage into the private channel. Maybe there's some company-specific factors here to explain the difference in the commentary. But maybe just if you could go a step further on what you talked about on your 4Q call and you're expecting the VBP impact in the public channel not to leak over significantly into the private channel.

Yes, happy to do it. So maybe just set the stage, we have about $100 million of implant business in mostly premium impact in China and over $75 million of ortho business. of that business today is in the private sector. And we have really moved that over the last 3, 4 years from public to private. The price competitive dynamic is nothing new in China. If you look at that private sector that had a range of offering and just take any segment, take a look at aligner as an example. You have a large set of offering with a wide set of price capabilities. The same thing on the implant side. We have been really focused on the premium segment. We focus on all ortho surgeons, Rios or to Danes. And that's how we have been able to create differentiation. That's the first point we want to make. You already know that we were selected as one of the very few suppliers both on the premium as well as on the value side. We also are the only ortho company that was selected. The smaller province is not completely done yet. We think there is an upside potential on the volume. We're not counting on it, but we think there is an upside potential. The prices that have been put out there are low -- are better than what we expected to begin with. We thought that the prices are going to drop almost 50%. It hasn't been as drastic. So put all that together. We built a model. We said this model would have about a $20 million to $30 million impact, margin impact on us. With the assumption that we would have -- we will be able to maintain some business and without the assumption that we're going to get a whole lot of volume have come of it. So far, what we have seen, those assumptions are valid. And the price leakage, we have anticipated -- we talked to a lot of DSOs. They told us that the competitive dynamic is nothing new. They can put a price out there. But what they do is provide host the services around it, pretreatment, after treatment, ongoing support that the price of surgery is one thing, overall care prices are different. So I don't think this is without respect. I don't think this is something new that we have just discovered that has been there all along. And we feel confident and comfortable that we'll be able to manage through it. The focus on the premium, the training, education, the support capabilities that we have would give us an opportunity to manage through this. On the other hand, we have been very clear that visibility in China is fairly limited, at least in the short term. That's why we put the guidance in that we would be a little bit more muted in the first half. And as this ramps up, we're going to see better results as we go forward. And those are the realities of what we're dealing with on a day-to-day basis what we hear from China.

Brandon Vazquez from William Blair. First on Spark, in our channel checks, it sounds like Spark is a very competitive clear aligners, especially even just talking about the physical clear aligner itself. One area, though, that maybe understandably given you guys are a little earlier is on the software side that maybe need some update iterations, improving streamlining. So curious if you guys can just talk a little bit about what's in the pipeline on the software side? And where do you guys see room for improvements and maybe timeline of any updates?

Right... Great question. So I think the thing to remember with Spark is the focus we have on clinical innovation, right, clinical features that help in orthodontists do more things with the aligner, give them more flexibility and control over what they want to go do. And that focus, while we also do some things around workflow and help doctors advance their digitization in our own practices as well. Our focus really is on that clinical -- those clinical enhancements. And so it's a little bit of a different model, maybe than what you see historically in focus areas of other players in the space. And so with that, what our customers see is really a big difference in what they're able to do and the speed at which they're able to do it. For a patient and for a practice, what they want is they want to get from a starting point with a patient to the end, using a few aligners as they possibly can, right? It's faster, patients love it. And so that's what we're doing with those clinical features. And so the big productivity gains, so to speak, that a doctor gets is once they learn to use the system, it takes a little bit of time, but as they become expert in the system, they can start from the beginning and finish those cases much faster than what they've seen before. And so they get those efficiency gains, but the focus really is about those clinical features. And that's what we continue to focus on innovating.

Got it. And then switching to the implant side. There's DSO, staffing shortages inflation. There's a lot of pricing headwinds or margin headwinds on dentists and you guys have a premium and a value portfolio. How do you think about that mix going forward? How do you become a little bit more of a meaningful player on the value side as well?

Yes. As we have said before, the value side of our business is work in progress. We're implementing the Nobel playbook there and focusing on just recently changing out a lot of the leadership positions. We're doubling down on commercial execution now. And part of that is to go with the joint force into DSOs and make us much more attractive as a player and take DSOs have a choice between premium and value for those that are interested in that.

I'm Justin Lin from Morgan Stanley. Just a little bit more on Spark. Can you provide us an update on just like the ramp of Spark in the next few years? And if there is the ability to potentially quantify some of that, what does your guidance assume regarding Spark contributions? And over the longer term, to your Spark expectations also include a potential expansion into the GP channel?

Yes. So let me give a start it and then Eric put free to just add to it. So this is kind of break this a little bit and tell you what is happening. So we talked about $2 billion of bracket and wire and what Eric talked about, about 20% market share, low single digit, in fact, in some places, even flat. And we have been continuing to grow mid-single digit there. So let's take for the sake argument, let's say, the market and the clear aligner is about $4 billion today. And we can argue it's 4%, is it 5 and is 10% or 15%, but the same is $4 billion. There is about 1/3, 1/3, 1/3. 1/3 is direct-to-consumers, we're not participating there. 1/3 of it is GP is not our primary focus. We're not stopping anybody here from buying our product. But we're not going to GP offices. We're not developing GP capabilities. 1/3 of this is on orthodontics. Orthodontics , they know how to use clear aligner. They are experienced around it that's exactly what Eric said. We started in that space. And there is plenty of opportunity for us to just extend in that category. They're growing at the same pace, even a little bit faster than the other 2 segments, $1.3 billion, $1.4 billion is growing 10%, 10% to 15%. We have a very small market share. And if you look at it, just sustaining that category, continued geography by geography, building that up over time, that target that we have put out there to be the #1 player -- in a clear aligner on the orthodontics segment. If you add that, plus what we have in the bracket and wire, we be the #2 player in orthodontics as a whole. And the ramp that we talked about, we committed in 2021 that we're going to trip the size of our business by 2024. We are well on our way to be able to do that. That combination of bracket and wire, plus clear aligner, gives us an opportunity to leverage both have the capabilities underground, geography by geography, build that model over time to be able to get to that target that we want. Just in a simple format, if you don't have double-digit market share, it's hard to be the #2 player in a $7 billion, $8 billion market. We are today almost double-digit market share with what we have today and plenty of runway for us to be able to expand that over time.

This is Rachel Vatnsdal Olson from JPMorgan. So you spent a lot of time today talking about EDS at the legacy business, but I wanted to talk about it from the context of your capital deployment strategy. So can you talk about the opportunities that you see to deploy EBS with your recent deals with Carestream and then osteogenic and maybe some of the success stories that you've had so far, given we're approaching a year on some of those deals? And then as a follow-up, just regarding your M&A strategy. So Danaher historically has always targeted assets that maybe have overspent or had some areas where they have operated better and then deploy EBS, and that's really been key to their growth story. So how do you see that really impacting Envista's M&A strategy going forward?

Excellent. All as I mentioned, this is my year 8 in dental, my year 16 in Danaher and from the day that I joined Michel, who's the Head of my Strategy and Business Development. We have developed a very standard process. That standard process starts with cultivation. So we look at each segment as we look at segment that we talked about, we look at where we are under index and where our opportunities are tremendous amount of market work. We do a lot of market work just understanding the market, and I'll come back and tell you about the Kerr market work in 1 minute. We do a lot of market work to understand the market after we have enough insight in the market, then we look at players in the market, look at who are the players in there. Then we do a deeper dive in the leadership structured product categories, the culture. And then after that, we start doing cultivation process. We were cultivating Carestream since 2016. So we have been in touch with them. Michel, myself and Patrik did mention that we work workers senor a long period of time. And so we knew a lot about them. We continue to maintain relationships. We talk to their customers. We learned the market. We actually -- if you recall, a year before acquisition, we actually had some relationship with 3 shipment try to figure out and learn what the market dynamics look like. So 6 years. It is 6 years from the time that we started to the time that we finally came to an agreement that this is the right acquisition. It makes sense for us, product has the capability. We understand the market. We know the synergy. That process repeats itself every month to go through that process myself, Howard, Michel and the business leaders. And that cultivation is not just one individual role. Patrik has a group of people, Eric, David, Drew and others. They called through to have relationship with these companies, and they continue to maintain that and learn the market, continue to get better at it as you go forward. We look at it as a standard process. That's about the cultivation and then there is a whole sort of capital deployment and a structure that Howard and his team working on the whole sort of legal aspect that is run an IP landscape that Mark and his team are looking at. We bring all of that together when we are ready to take the next step. So let's say, we have done the acquisition and now it's part of our overall package. And that's the question how does Danaher does have been able to do this so well over a long period of time. Let's use Osteogenics as a good example of we have had it for more than 6 months, and the process that we have used in order to make us genic part of our company.

Yes. So first, in the initial point, why we were interested in Osteogenics, it's a complementary we're building our regenerative business. We like the brand that is incredibly strong, particularly in North America. The products are very premium and top of the line all across the board and the company is extremely focused on training and education to expand the horizon of what you can do with biologics. So those are the reasons why we like the company. And after the close of the company, we started our immersion process immediately. And part of that is to bring EBS into it. So we've run a number of kaizens in the factory in Osteogenics and also with the supporting staff there. And a few weeks ago, you and I and a few are leadership team, we thought an immersion as part of the immersion, we brought the entire leadership team of both osteogenic and our internal scanning business through the EBS immersion process for the 4 days that Amir mentioned earlier.

After that, after we go through this, we defined a process that is called 100-day after acquisition. We go back and validate a lot of assumption that we have made prior to the acquisition. And then we establish sort of processes on a weekly and monthly basis that you heard from David and Drew operational capabilities, KPIs as well as policy deployment in the longer term. We have done 3 of them since separation from Danaher. We have also inside the service partnership activities behind the scene, ortho investment and other places. And we're getting better as we go forward. We want to make sure that we have a good track record that we can execute those, and a big part of that has to do with the management, our ability to really cultivate, acquire, execute and can that for. One of the things we talked about the leadership was a lot of the leadership capabilities that comes to them and has come to us has been through acquisition. Eric talked about that as an example. And in the case of osteogenic and biomaterial, in fact, the individual who is running that business before is now running the biomaterial for us across the portfolio. And we're really excited about having him has been in the market for 20-some years, knows the industry excited about ABS to carry this to the next level..

Of course. We have a couple of questions from the -- from our virtual participants. So from Michael Cherny of BOA. Any real-time updates on how China reopening is impacting the business, excluding the impact of BP?

Yes. We're getting a lot of information and we're just kind of trying to validate it at the local level. We were really focused. We wanted to make sure the safety of our employees is paramount. -- wanted to make sure that we are not putting our organization safety of our employees in any way or shape in jeopardy. We mentioned that back in January when we had a conversation later on in February that a large number of employees at COVID, and we ask everybody to stay home and not come to work and making sure that we create an environment that people feel good about it. They have come back. People are really excited about it. It seems like they're able to manage through it. We're monitoring the number of clinics, hospital, offices, open. And so far, we're seeing good momentum. We are seeing good momentum in there. We're not ready to really make a definitive statement of what has radically changed in here. It's very early, and it's just positive feedback we're getting from various places. As we learn more, we apply those to our operating model as we go forward. We made the assumption that this is going to be a slow ramp. And in second half, we would see a much better momentum.

Great. We have another question from our virtual attendees for you, Howard. Can you discuss a little bit about the free cash flow in 2022 and its relative weakness? And then I was going to look in the midterm and long term?

Sure. So our 2022 cash flows were light relatively to 2021. A few reasons for that. I think cash flow is associated with discontinued operations as we sold off the carbo business -- we had some timing impacts associated with tax as well. And we've made some pretty significant investments. We talked about that in the context of Spark as well as other innovation. And so I think that impacted our free cash flow for the year. Going forward, rest assured, certainly, cash flow is a very important metric for us and getting free cash flows in excess of net income also is an important metric for us. And so we'll be focusing on delivering those results going forward as well. Great.

Nathan Rich from Goldman Sachs. I wanted to ask on the iOS business. You reiterated the 10% market growth. It's also a very competitive category. So I'd just be curious now that you've integrated kind of Dexus iOS, how you're planning to go to market and where you think you can differentiate your product versus what's currently out there?

Yes. Thank you, Rich. So as I mentioned, we started cultivating working with Kerstein in 2016. So what we found through all of that investigation, a product was a really good product. I meet a lot of the standards, and we have been -- hopefully, we get a chance to show that is lightweight, economically is really good, has the speed requirement and the open architecture that we can use. So the product really met the requirement that we had expected. And we have an opportunity to really extend it far greater through integration with our software infrastructure with DTX, we have an opportunity to really bundle it now with the Sprint Ray and a whole lot of other capabilities around product. So that, I would say, met our expectation. And in fact, to some extent, it exceeded our expectation. Second part of that was around operation. What's a cheap part of our ability to really perform, get the product out there on time with the quality. And it has been a very positive experience. We have plenty of opportunity for improvement. The fact that this was locked up in China in Q2 and then travel hasn't been as easy, has been a little bit of a limiting factor, but we have built repair centers in Europe and in U.S., and we have been able to provide the support that the customers want. The third piece is around go-to-market. So a little bit of what it used to be and what it is. Custom sold that directly, had some partnership with some of the implant providers and had a limited distribution model, specifically in the U.S. If you look at our imaging business as well as our consumer world, we have wide distribution worldwide. We have a large number of people that they are selling in different geographies. And this is where we have been leveraging the Dexus brand and the imaging infrastructure. So our go-to-market is a combination of leveraging the distribution that we have today, selling the product as a stand-alone product that is really good, and I would answer the pricing in a second. -- sitting a product that is really good. It's a great product, meet the requirement, can operate independently. He has discount flow capabilities, and then bundle it as a solution in our auto as well as our implant. That is a package that it is enable ability to really place implant to auto a lot quicker, a lot faster. And the software capabilities are now getting any grade. In the back end, to integrate a bit sad same-day aligner and barriers and night guard and temporary implant in office. So we are building this infrastructure now and try to sell that as a bundle through our direct sales force with support that we can provide. So a hybrid model of a go-to-market in here. Independently to distribution, clinical capabilities and bundle through our direct sales force. Now talking about the pricing. The market in iOS is radically has changed it over time. If you go back only 2, 3 years ago, you are top of the market premium players. Then you had a lot of point solution. It started coming in kind of more of a value segment one-off. And then you have a whole set of new players that coming and finding their rather. The iOS, the Dexus iOS is a premium product, thoroughly valued. And it's sitting right in the middle, and we can extend it through integration to the premium side. We can sell it as a stand-alone to that high-value segment. We think we are priced very appropriately. What we have seen so far, reaction that we're getting is the training, the support, the installation, those things really an important part of that equation, and we are building that up rapidly. I don't want to give you the impression price is not important, but I think there is a lot of opportunities for differentiation. That is not only price, it's about an creation, usability, ergonomic, ability to do a lot more than just doing a scarp cloud services, back-end services around clinical piece. One of the key things that we're learning and people alternates run design services. It's great that I would do that. It's great that I want to do implant, but I need design capabilities that teaches me tell me how to place implant and then design capabilities, how do I build a prosthetic that is actually fits design capabilities that on ortho. It's great that I can do a scan, but I want to be able to do a design that really fits, and I don't have to do refinement after refinement after refinement. So there is opportunity for differentiation. We're learning evolving, partnering and really building Ct capabilities, product as a core of it, but the whole sort of innovation around it, provide productivity. At the end of the day, this is about productivity. If I can show you that we can do a lot more, answer will become a lot easier. And if I can show you side-by-side, that here's what we can do for you from a speed, usability, productivity gain. I think that discussion about price would have different terms into it.

That's helpful. If I could ask a quick follow-up on China. Have your long-term growth expectations for that market change with BBP being implemented and what you've seen kind of over the past couple of years. So I think you had -- at the time of the IPO, targeted double-digit growth long term in that market. Is that still how you're thinking about it today? Absolutely, simple answer is Nate is absolutely and I tell you why we think that way is not because BBP has radically change there, you got 1.4 billion people you look at the number of penetration number people who get implant, number of people who get ortho, number of people, it is just - talk about under penetration it is radically underpenetrated and then you so take a look at the ten year horizon Chinese government in tension around medical and dental how many students are going to come out of there universities and out of the hospital and the [indiscernible] expansion to second year third year places and also is medial class as well as the aging population this is significant opportunity for really providing training education services in there. Last couple of years has been a little bit of choppy a little bit of a difficult manage - to manage through it, but long-term potential we don't see any change, we're not changing course, we'll understand what is taking place on the market. Today trying to get better equipped, better educated. Our customers are staying with us and we're going to continue to work with them to [indiscernible] to revamp that business going forward. Hopefully on the second half this year and through 2024 2025. I think this is going to be an important part of a equation. I want to park for a second to talk about the emerging market, despite all the things that you are seeing out there are emerging market business gone very rapidly and we talk about large metropolitan cities [indiscernible] in Latin America and Southeast Asia, in Eastern Europe, in Middle East keep building capabilities to leverage that support training education providing value for each people and there've been people run our emerging market and been given us a lot of information about what they are asking. Spark is a really good example of it, I have a whole set of training program now the reputation is from geography to geography. Mexico City, next in line - Southeast Asia training these people bring them up to speed I'm not deemphasizing China but I want to tell you there's a lot more opportunity for us to really change and that democratization that we talked about emerging market play a really important role in there.

So we have a few more questions from our virtual friends. So Amir and Patrik, you guys expressed the goal of being the #1 player in implants. Can you discuss some of the key hurdles that you have as well as with the key milestones along the way as you know that you're successful in becoming #1 player in implants?

Yes. So to begin with, we have to execute the program and capabilities that we have today. About $1 billion business, we got and make sure that, that business operates to the best visibility We do that well. We continue to delight our customers, that gives us the permission, the license to do a lot more. We have done that. We have made transformation in the past 2 or 3 years in various segments of the industry in this business. We talked about the manufacturing Drew talked about on-time delivery. Patrik talked about packaging, commercial execution and customer experience. We have significant opportunity on improving our operational capabilities. talk about EBS and work. Would we be able to continue to extend the margin? Absolutely because there is opportunity for us to improve what we do on a day-to-day basis. So that's pillar #1. That's the fundamental. We do that well. We continue to execute it. It gives us the permission to add to the portfolio. We'll add to the portfolio through partnership early investment, deployment of capital -- we're talking a long-term programming here and talking to executing in every aspect of this. I think the #1 thing is applying the EBS fundamentals in commercial, in operation, in R&D. We do that. It's not an obstacle. It's an ability to execute and make sure that operates in every place, gives us an opportunity to go ahead and start doing inorganic activity to accelerate that over time.

Great. I think we have one more final question that we'll do from -- also from online, where obviously, the performance of the stock has been pretty solid since the IPO. Is there anything that you guys think -- and this is for me an hour, is there anything that you guys think that maybe investors haven't fully valued or aren't fully seen or appreciated in the Envista story?

Well, I mean, I'm the CFO, I think that the stock is underpriced. So let's start there. I think maybe perhaps a lack of appreciation, maybe that's too strong a word, but I think execution, and Amir and I have talked about it. And we mentioned earlier today, we said 50 to 75 basis points of margin expansion. We've delivered over 450 EBS is a critical component of that. We talk about our ability to do a lot of the scenario planning. Those things have served us well at the beginning of COVID in 2020. And even if we're in some choppy times now, I think the reality is that process and that muscle building that we've developed is going to serve us well going forward as well. And then certainly, I think the portfolio side, we've indexed more towards higher growth, greater profitability. And so that would be another area where I'd say, perhaps more consideration needs to be made.

Okay. I think that will wrap up with a question and Q&A for today. So really appreciate everyone. Thank you for our online participants. Really appreciate your time. For the people here, we're going to have to take a short break, and then we will have a tour through our Envista village. So again, thank you very much, and look forward to the next connecting to you guys next time. Thank you.