Dental giant Envista concludes transformative year

Envista went public on the New York Stock Exchange in 2019 and finished the year with strong earnings, operating margins and cash flows. (Image: Shaun Jeffers/Shutterstock)
TextJeremy Booth, DTI

BREA, Calif., U.S.: Newly independent Envista Holdings has concluded a transformative year that saw it emerge as a new major player in dentistry. New partnerships in emerging markets have put it on track for an improved business performance in 2020.

With its operating companies, Nobel Biocare, Ormco and KaVo Kerr, Envista’s business is intertwined with most segments of the global dental market and consists of more than 30 dental brands. Sales at the company in the fourth quarter amounted to $720.5 million, 5% down on those from the comparable period in 2018. Over the period, core sales at the company, which exclude certain revenues and currency impacts, were down 3.5% and net earnings for the quarter were $56.1 million, or $0.35 per diluted share.

Revenues for the 12 months ended Dec. 31, 2019, were $2.751 billion, slightly down from the $2.844 billion reported for the 2018 financial year, and net earnings were $217.6 million, down from $230.7 million. Envista’s free cash flow for the year was $321.3 million; this means that its conversion ratio of free cash flow to net earnings—which pitches cash flow against net profit—was a positive 148%.

“Being fully independent provides us with the flexibility and autonomy [that] we need to execute in this dynamic market environment” - Envista CEO Amir Aghdaei

Speaking with investors and analysts in a webcast call on Jan. 30, CEO Amir Aghdaei said that the drop in revenues was due to lower demand for equipment and consumables in established markets during the fourth quarter, but was also the result of unfavorable comparison. Having only separated from Danaher in December, the year-over-year comparisons in Envista’s earnings report derive from historic Danaher accounting.

Aghdaei said that strong earnings, operating margins and cash flows had been delivered in the quarter and that the company’s newly minted independence stands it in good stead. “Being fully independent provides us with the flexibility and autonomy [that] we need to execute in this dynamic market environment”, he asserted.

Envista’s first successes

Aghdaei told listeners in the conference call that the separation from Danaher had been a milestone for Envista. The company has added 90 new employees to its team in recent months in order to build up its corporate organization and has also recorded its first successes: the acquisition of a company, the continued rollout of the Spark clear aligner brand and new strategic partnerships in the digital space.

Envista’s acquisition of Matricel—a biomaterial manufacturer that produces membranes used in dental implants and other oral surgery procedures—was completed in January, and Aghdaei said that Matricel will be a catalyst for growth for Envista by enabling its dental implant businesses to increase their exposure to biomaterials.

Investing in orthodontics

Orthodontics specialist Ormco had mid-single-digit revenue growth in 2019, driven by demand for its Damon system brackets. The Damon Q2 self-ligating bracket was launched commercially in 2019 as a follow-up to the Damon Q, and sales of the new bracket have already exceeded $50 million.

Envista also continued to roll out Ormco’s Spark clear aligner system, which was first introduced to dentists at the American Association of Orthodontists Annual Session in Los Angeles in May. Envista worked to create further capacities for Spark in the fourth quarter and to broaden the reach of the product. “[We] are now positioned for a broader rollout [of Spark] in the U.S. market. We also recently received regulatory approval to sell and manufacture Spark in China and shipped our first commercial case in December,” Aghdaei said. “We will continue to invest and expand capabilities as we anticipate Spark demand will ramp up throughout the year and add more than 50 basis points for growth for Envista in 2020.”

“We are very excited about the progress we have made [with] Spark and are on track for acceleration through 2020.”

New approval software for Spark with additional features has been launched, which Aghdaei said will streamline workflows and give dentists greater control over tooth movements. With this upgrade, the clear aligner system is now more seamlessly integrated with the 3Shape TRIOS intra-oral scanner and Envista has also qualified the Medit i500 intra-oral scanner for use with Spark—a seamless workflow integration, similar to that offered by TRIOS, will be offered in the near future.

“We are very excited about the progress we have made [with] Spark and are on track for acceleration through 2020,” Aghdaei said.

Equipment and consumables

While revenues in this category were down, Aghdaei said that Envista’s imaging portfolio had performed well. Shipments of the KaVo OP 3D radiography and imaging platform more than doubled in 2019, and Envista also entered the fast-growing digital impression-taking category in the fourth quarter. The KaVo Kerr X500 intraoral scanner was introduced at the Greater New York Dental Meeting in November and features a Spark integration that Aghdaei said will soon integrate directly with Nobel Biocare’s DTX Studio suite.

Upbeat on DSOs and emerging markets

Envista’s collective sales growth for 2019 at its top ten dental service organization (DSO) customers was above 10%, and Aghdaei said that he expects that Envista’s DSO customers will aim to significantly increase their volumes in 2020 and beyond.

Aghdaei said that Envista has secured “multiyear agreements to supply implants to three of the largest DSOs, who intend to accelerate their specialty procedures. We believe these customers will significantly look to increase their implant placement capabilities and volume over the next several years,” he added.

Nobel Biocare introduced its new N1 complete implant system in Madrid in June, and the implant will add to Envista’s European business in 2020. A rollout to other regions is planned after the European launch.

Envista also finished 2019 with good mid-single-digit growth in its emerging markets. For the full year, 24% of the company’s total sales came from these markets and double-digit growth was recorded in China. “More importantly, China sales within our Specialty Products and Technologies segment grew over 20% for the year,” Aghdaei said. “With our 2019 progress, we are confident Envista will deliver low single-digit core growth in 2020.”