Envista Holdings Corp Q3 FY2020 Earnings Call

My name is Angela, and I will be your conference facilitator this afternoon. I would like to welcome everyone to the Envista Holdings Corporation's Third Quarter 2020 Earnings Results Conference Call. I would now like to turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference.

Thanks, Angela. Hello, everyone, and thanks for joining us on the call. With us today are Amir Aghdaei, our President and Chief Executive Officer; and Howard Yu, our Chief Financial Officer. I'd like to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations, and will remain archived until our next quarterly call. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics relate to the third quarter of 2020, and all references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices which have applications submitted and pending for certain regulatory approvals or are available only in certain markets. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will 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, and 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 as required by law. With that, I'd like to turn the call over to Amir.

Thank you, John, and welcome to everyone on Envista's Third Quarter 2020 Earnings Call. We are satisfied with our performance this quarter, the recovery in the dental markets, and our advancements in strategic initiatives, which have significantly improved our revenue, adjusted EBITDA, and free cash flow. This September, we celebrated our first anniversary as a public company. Over the past year, we have made significant progress in enhancing Envista's long-term prospects. To create a more focused and competitive company, we introduced several transformative products, worked on permanently improving our cost structure, and exited nonstrategic businesses. So far, these efforts combined have resulted in a strong business model, with more than 85% of our revenue coming from consumables and small equipment. A key achievement has been refining our company culture, centered on customer focus, diversity and inclusion, innovation, and ongoing improvement. I want to acknowledge our manufacturing and distribution teams who have embodied these values over the past several months, always ensuring that our customers receive the necessary products for providing dental care to their patients. I also extend my gratitude to our employees, customers, and partners for their dedication, sacrifices, and support. Your commitment to enhancing patient quality of life is what makes this industry extraordinary. Together, we are advancing our goal of improving access to dental care worldwide. Now, I will provide an update on our priorities for accelerating growth, improving margins, and reshaping our portfolio. We have started to enhance Envista's growth rate, with revenue contributions from infection prevention, Spark Clear Aligners, and the N1 implant system adding over 300 basis points to our performance this quarter. Furthermore, our orthodontic business grew at a low double-digit rate, demonstrating robust demand for both our brackets and wires and clear aligners. Our infection prevention team in Romulus exemplifies the positive impact of our continuous improvement mindset on our business. They conducted numerous kaizens and process improvement events to boost operational efficiency in manufacturing and distribution. This along with our capacity investments led to a more than 50% increase in output of our disinfectants in Q3, driving over 30% revenue growth in our infection prevention segment. We have also secured EPA approval for CaviWipes 2.0, our latest surface disinfectant wipes, which are effective against over 40 pathogens. Its short 2-minute kill time, efficacy against numerous pathogens, and excellent material compatibility will help differentiate our offerings in the medical market. We believe that establishing a stronger presence in the medical sector will ensure sustained demand for infection prevention products as the pandemic subsides. The performance of our orthodontic business further reinforces our strategy of providing a range of options that allow clinicians to choose the best treatments for their patients. This segment is well-positioned to grow in a largely untapped market, with a significant international footprint, a healthy new product pipeline in brackets, wires, and clear aligners, as well as an innovative education program. Over 70% of our orthodontic revenue comes from outside North America, particularly in China, where we have achieved sustained double-digit growth over the past several years and continued growth in the first nine months of 2020. Our latest orthodontic innovation is the Spark Aligner Clear Aligner system, which has gained traction among customers due to its user-friendly software, enhanced resistance, and comfortable design. In the third quarter, we doubled our aligner manufacturing capacity while reducing customer lead times by over 40%. Additionally, the number of active doctors using Spark has increased by over 50%, contributing to a rise in daily case submissions from July to September. Spark is on track to add over 100 basis points to our growth in the fourth quarter. Training and education are also critical differentiators. In 2020, we’ve collaborated with key experts to train thousands of orthodontists globally. With fewer than 15 million orthodontic cases worldwide each year and an addressable market of over 500 million people in need of and able to afford orthodontic treatment, we see a substantial growth opportunity in the long term. Moving to our margin improvement efforts. We managed our expenses effectively and executed well on our $100 million permanent cost reduction program, demonstrating the disciplined approach of the Envista business system in planning and deployment. Our EBS office has spearheaded this initiative since March, maintaining focus with a detailed project roadmap and weekly progress meetings with senior management to address obstacles and meet our commitments. We have seen more than $15 million in savings this quarter from our permanent cost-saving measures. Overall, we reduced our operating expenses by over $35 million through these actions, temporary measures, and discretionary spending cuts. The execution of our margin initiatives contributed to an adjusted EBITDA margin above 20% in the third quarter. Looking ahead, we will continue to balance margin expansion with investments in our best growth opportunities. We have also made strides in developing a stronger, more integrated workflow-oriented portfolio. We believe our ability to integrate the largest installed base of imaging solutions with our DTX workflow software and treatment solutions enhances customer productivity and improves patient outcomes. We completed our last orders for our Brazilian and Pelton & Crane treatment unit businesses in the second quarter and expect to fulfill most remaining commitments by year-end. We plan to actively manage our portfolio by exiting certain lower-growth, lower-margin product categories and geographies, which comprise less than 2% of our 2019 revenues. Finally, the strong cash flow this quarter has significantly improved our balance sheet, with net debt now around $1 billion. This will position us favorably for pursuing our inorganic capital deployment strategy as we transition to a more normalized environment. Now, I'll turn it over to Howard for a detailed look at the financials.

Thanks, Amir. Third quarter sales declined 2.9% to $640.5 million. Sales were unfavorably impacted 2.6% due to discontinued products and were positively impacted 0.1% from acquisitions and 0.8% from currency. Core sales decreased approximately 1.2%, a significant improvement in growth from the first half of 2020 as global dental market demand has recovered faster than anticipated. The improving performance was led by our consumables businesses, which increased at a low single-digit rate. Geographically, sales in the developed markets were up low single digits as patients have returned for treatment with most offices now open for non-emergency care. In addition to improving patient volume, our U.S. results were particularly strong due to the robust demand for our infection prevention products. In Western Europe, we experienced year-over-year growth in most major countries, except for the U.K., where we have yet to see a broad-based resumption of elective dental procedures. In emerging markets, China returned to high single-digit growth due to strong performance in our specialty businesses. Our specialty business did particularly well in the private sector where actions we have taken to increase our market share helped drive double-digit revenue growth. Outside of China, other emerging markets declined at a double-digit rate as the COVID-19 outbreak suppressed demand. Our adjusted gross margins of 54.5% declined 120 basis points due, in part, to foreign currency and product mix as we build capacity for new products in our specialty business. Adjusted operating profit margin was 18.7%, an increase of 340 basis points, largely driven by our cost reduction initiatives. We have secured more than 80% of our permanent cost reduction program goal of $100 million and remain on track to be completed by the end of the fourth quarter. Our cost actions have led to a year-over-year decrease in personnel and direct spending by more than 15% in the quarter. Profitability substantially increased with adjusted EBITDA growing by 18.6% to $132 million. Our 2020 third quarter adjusted EPS of $0.48 is an increase of approximately 40% in comparison to the 2019 third quarter results adjusted to include incremental corporate costs and interest expense of approximately $29 million from being a stand-alone public company. The stronger operational performance and expense management helped to return the business to cash generation in the third quarter with free cash flow of $135 million, an increase of more than 70% from the prior year. The team did an outstanding job with collections, reducing inventory built up before the pandemic and managing terms with suppliers, which also helped lead to better performance in the quarter. We fully repaid our revolving credit facility and ended the quarter with more than $700 million of cash, leaving our balance sheet in a very strong position exiting the quarter. Turning now to our 2 business segments. Our Specialty Products & Technologies segment sales were down 0.3%, while core revenue declined 1.3%. Our orthodontic business grew at a low double-digit rate with substantial contributions from both brackets and wires and clear aligners. Notably, brackets and wires increased at a high single-digit rate with mid-teens growth in developed markets as orthodontists have seen a significant increase in volume across their practices. While this is due, in part, to pent-up demand from office closures during the first half, there is also a considerable amount of new case start activity occurring, and our business exited the quarter with a healthy backlog. Patients are taking advantage of more flexible work and school schedules, and in many cases, more discretionary income due to canceled leisure activities. This is particularly true within the teen segment, which makes up a large share of our orthodontic business. In China, we held the Ormco Forum in the third quarter, which was the first major event since the onset of the pandemic. During the 2-day session, the team delivered a comprehensive education program to more than 1,000 health care providers and featured 3 new products: Spark Clear Aligners; our aesthetic bracket system, Symetri; and our flagship, Damon DQ2 bracket system. The immediate engagement that the event generated illustrates the opportunity that exists in the China market. Our implant business declined at a mid-single-digit rate, primarily due to weakness in emerging markets outside of China, where conditions have remained challenging. At Nobel, we are encouraged by the early progress on commercial execution and new product initiatives. In North America, Nobel's revenue from our DSO customers increased at a mid-single-digit rate as our strategic partnerships continue to expand. In Western Europe, the combination of our successful product launches and improving sales force execution helped to drive growth at Nobel, while setting us up for better long-term performance. Examples of new product launches, which contributed to this performance are TiUltra and Xeal, which were launched in Europe in the second quarter of 2019. These new implant and abutment surfaces promote earlier osseointegration, soft tissue attachment, and better aesthetics. Despite the pandemic, we shipped more than 100,000 implants with this technology in 2020. Specialty Products & Technologies' adjusted operating profit margin increased by 40 basis points to 22.1% due primarily to cost savings from our structural program, which were partially offset by increased investment in clear aligners. Our Equipment & Consumables segment sales decreased 5.2%, while core sales decreased 0.6%. Discontinued products adversely impacted sales by 4.7%, and we anticipate discontinued products will have an adverse impact of approximately 6.5% of segment sales in the fourth quarter of 2020. Traditional consumables increased at a high single-digit rate, led by the infection prevention business, which grew more than 30%. We anticipate the strong performance in infection prevention to continue as our backlog position remains at near-record levels of more than $30 million entering the fourth quarter. In our restorative and endodontic businesses, we experienced a modest decline primarily due to lower procedure volume, which has gradually improved through the quarter. Also contributing to the improvement in restorative volume was the introduction of our SimpliShade composites. SimpliShade features just 3 shades that blend well with an entire range of tooth colors in comparison to traditional composites which require more than 16. This allows dentists to more easily match 2 shades which improves efficiency while reducing inventory requirements. Launched in North America in September, this product helped drive an increase in end-user demand of more than 5% for our composite portfolio for the month. Our equipment business declined at a mid-single-digit rate with significant sequential improvement in revenue in all product categories. The equipment business has been more resilient than originally anticipated as dentists' willingness to make planned capital investments has been supported by improving patient volume and government support of capital purchases in select geographies. We are particularly pleased with the strong demand for our imaging workflow solutions, including our 3D CBCT, portable x-ray, and sensor products, which are helping clinicians operate their practices more efficiently. Sales from these imaging products increased slightly in the quarter. Equipment & Consumables' adjusted operating profit margin increased 920 basis points to 20.6%, impacted both by a favorable product mix and a tremendous job by the team executing on our cost reduction program, which drove more than 400 basis points of improvement. With improving growth in our infection prevention business, the exit of our treatment center business in North America and Brazil, and sustained cost reductions, we anticipate that the Equipment & Consumables business will continue to have better operating margins going forward.

Thanks, Howard. While it has been a challenging year in the dental industry, we feel confident that the progress we have made on our priorities to accelerate growth, improve margin and reshape our portfolio have made us a stronger company. Our new products and growth priorities contributed more than 300 basis points to revenue in the third quarter, and our China infection prevention and orthodontic businesses are delivering strong results. Our margin improvement programs helped reduce operating expenses by more than $35 million while expanding EBITDA margin above 20%. We started reshaping our portfolio by exiting Pelton & Crane and our Brazilian treatment unit businesses, leading to an integrated and workflow-focused portfolio that has more than 85% of revenue from consumables and small equipment. We are encouraged by the recovery in the dental market over the past 2 quarters, which has continued into October. We entered the fourth quarter with a healthy order backlog across our business and particularly within our equipment business, which had positive order growth in the third quarter and a book-to-bill ratio of 1.1. For Equipment & Consumables, our inventory levels at large distributors are similar to those seen in the second quarter and are down more than 40% year-to-date. The above data points leave us encouraged about the health of our business. It is important to note that our physical calendar has 3 fewer selling days in the fourth quarter in comparison to 2019, which we estimate will lead to an adverse impact of about 4% of sales on a year-over-year basis. Geographically, we have seen stable conditions to date in comparison to the third quarter across most geographies. North America and Western Europe, which make up 70% of our revenue, have built up momentum as a result of pent-up demand being replaced by new patients seeking treatment. China, representing about 10% of our business, has seen the most rebound, and we anticipate another quarter of improving growth. In emerging markets outside China, we have yet to see a significant rebound in dental activity as access to health care remains challenged by the current pandemic. Despite the current rising COVID case count around the world, dentists' offices have largely remained open to date during this new wave of outbreaks. This includes the lockdowns announced yesterday in France and Germany. While we are reassured about this and the resilience of the dental market, we remain cautious given rising case counts and lockdowns, which may lead to lower patient volumes in the near term. As we look past the pandemic, the long-term prospects of the dental industry are bright. This is a resilient industry that now has more patients who are underserved, a growing need for more efficient solutions and many underpenetrated disciplines, including orthodontics and implantology. We believe it's our purpose to help make dental care readily available to more people, improve productivity and predictability of treatment options, and ultimately create a better quality of life for patients.

Thanks, Amir. That concludes our formal comments. Angela, we're now ready for questions.

Your first question is from Jeff Johnson with Baird.

Lots of places I could start, but let me just focus in on 2 margin questions, if I could, this afternoon. First, Amir, the operating margin in Equipment & Consumables at 20.6%, was there anything onetime in that? I mean, obviously, we see a lot of the drivers there that are helping, and that's encouraging. But should we think of upper teens, 20% being a new run rate that we can carry forward over the next couple of years in our model?

Thank you, Jeff. As we mentioned earlier, we have implemented significant changes in this business. Exiting the low margin, low growth segments has been beneficial. We have redefined our long-term business strategy and reduced a considerable amount of expenses. We anticipate achieving operating profits of over 10%, specifically between 10% and 15%, as we move forward. We are witnessing improvements in margins, and our goal is to sustain this momentum. As previously discussed, we have undertaken both temporary and permanent cost initiatives, with most of the permanent actions occurring in this segment. This has allowed us to invest in higher growth areas, such as infection prevention, N1, and Spark, and we foresee this trend continuing. Our portfolio is in a better position than ever, and we expect the positive trajectory to persist.

That's helpful. And then maybe on the other side of the business, on specialty then. There's some talk out there about clear aligners really gathering steam and taking share relative to brackets and wires in a post-COVID world for reasons that I'm sure you understand. One, are you seeing that happen? Two, is that a good thing for your business? Would you take the trade out of a Spark sale versus a DQ2 sale or something like that going forward? And lastly, next year, over the next 4 to 6 quarters, margins in that business, as Spark manufacturing ramps, is there accretion in the margin as Spark ramps? Or are there some higher manufacturing costs initially that you'll have to work your way through until you really get efficient on that manufacturing side?

Yes. Yes, of course. We see a strong rebound across the orthodontic business. We're seeing demand across their practices. We are not seeing a meaningful shift for Damon customers. We continuously serve and talk to our own customers. Clear aligners accelerating with over 100% growth in case submissions. Bracket and wire growing in high single digits in the second quarter and the third quarter, including double-digit growth in developed markets. Our orthodontic business is really differentiated from others because of the following reasons: over 70% of our revenue is outside the U.S. We are overexposed to China, which is growing double digits over the last several years. We're continuously doing innovative products in this space, not only on Spark Clear Aligners, but also in bracket and wire, Damon. And our training program has, this year alone, trained thousands of orthodontists annually. And this year, we have really accelerated that. What we have done here, we have provided choice to orthodontists that they can decide what is the best answer across bracket and wire as well as aligner. Last thing I want to highlight in here is that this market is less than 5% penetrated. We think that there is significant opportunity to expand bracket and wire as well as clear aligners. Now on the margin, we continue to invest and expand capacity for our clear aligner. And we think that, that combination will give us an opportunity to have a portfolio that assesses all the needs of customers by adding close to about $100 million business into portfolio over the next few years. That top line will give us an opportunity to continue to increase margin as we go forward. We have contemplated that. It is part of our plan, and we will see that ramp up as we continue to move forward.

Congratulations on a great quarter. I was considering your previous comments about October and the positive outlook on the equipment side's book-to-bill ratio, which was very informative. How should we think about the potential return of guidance? Have you all discussed this in relation to fiscal 2020 or fiscal 2021?

Yes. So Elizabeth, thanks for the question. Yes, we feel pretty good about what we're seeing. And as you indicated, consistent with the improvement in Q3, we're also seeing that here in October. We think that we provided some pretty good color overall as it relates to kind of broad-based expectations for us going into the quarter here. And as it relates to next year, we'll clearly go through our budgeting process and also monitor what's going on here in the marketplace. And we'll take that kind of quarter by quarter as it relates to providing formal guidance.

Just going back to the prior question on kind of cadence of growth through the quarter, Amir, I guess, did you see improvement kind of over the course of the quarter? And if so, does that mean that October is maybe trending a bit better than the down 1.2% that you did for the third quarter overall? And then as we think about the fourth quarter, how would you kind of give us some sense of the range of outcomes? You mentioned there could be some lockdowns that are put in place, but it's probably unlikely that practices will have to close again. So could you help us think about maybe how much variability you would expect in the fourth quarter given what we could see play out?

Yes, Nathan, let me provide some facts and data that might be useful. We experienced a combination of IPS, infection prevention, N1, and Spark, contributing to a 300 basis points year-over-year growth in Q3. We anticipate this will continue into Q4. We noted a positive order growth in the mid-single digits, with a book-to-bill ratio in equipment at 1.1. As we move into Q4, inventories have decreased nearly 40% in Equipment & Consumables compared to last year. Since the start of the year, we expect sell-in to align with sell-out moving forward. We foresee consumables continuing to outperform equipment. Ortho has shown consistently positive results. Implants, except in emerging markets outside of China, have remained steady. Infection prevention has also been reliable, and equipment has a strong backlog. The underlying factors are largely positive, and unless we see significant lockdowns, which I haven't observed geographically, we hope the performance seen in Q3 will persist through Q4. It's worth noting there are three fewer business days this October compared to 2019, which may impact results by about 4%. Overall, we believe this continuation will be beneficial, aided by new products and cost reductions that will allow us to invest further. However, as you can imagine, the situation is fluid; we are receiving daily updates and are monitoring developments closely to understand the implications on a weekly and monthly basis.

That's helpful. Amir, can you remind us how equipment backlog translates to sales and what that process looks like? If you're seeing mid-single-digit growth in the backlog, is that a good approximation for what you would expect equipment to do over the next quarter as that backlog decreases?

So Nathan, yes, I think we've noticed some unexpected trends in the equipment sector. We entered the quarter with a backlog, partly due to some incentives provided by the government. Many doctors are encouraged by the returning volumes. I expect equipment sales to decrease slightly, as Amir pointed out. However, we believe that the demand for consumables will likely remain strong this quarter. We are carefully monitoring the situation regarding the higher case counts related to COVID-19, as this may have an earlier effect on equipment sales.

This is Eleni on for Tycho. Congrats on the strong quarter. Following up on the backlog, the healthy backlog you exited the quarter with, I was just wondering, you mentioned that it reflects both pent-up demand from closures, but also an uptick in demand. Can you talk about sort of the backlog mix, how it's looking sort of from pent-up demand versus what sort of new demand standpoint?

It's challenging to quantify exactly how much of this is due to pent-up demand, but it clearly plays a significant role. We have observed strong demand for delayed orthodontic, restorative, and implant procedures. Customers are following through with their equipment orders. However, customers are indicating that much of that demand has been addressed. Currently, we are experiencing an increased demand for new cases. Restorative endodontic procedures are driving this new demand. Customers are taking advantage of the opportunity to complete orthodontic work, especially since they have more time and discretionary income in many instances. Additionally, visiting a dental office is likely one of the safest activities for people. We are witnessing positive momentum and an improved patient mix. As a result, infection prevention has become a standard part of our care processes. The current mix reflects a decrease in hygiene-related cases, which now accounts for less than 3% of our business, along with fewer hygiene appointments seen in recent quarters. Instead, there is a rise in restorative, implant, and orthodontic procedures, leading to an increased number of procedures per visit. Furthermore, we believe that the focus on infection prevention will persist. In Q4 alone, this has driven growth of over 200 basis points. We noted the emergence of a new product category and that China is experiencing high single-digit growth. Additionally, the specialty segment within dental service organizations is also witnessing double-digit growth. Overall, when we consider all these factors, the dental industry shows considerable resilience and has recovered more swiftly than expected. We are encouraged by the current trends, as dentists return to work, show flexibility with additional hours, and patients feel more at ease returning to dental offices. All indicators suggest a positive trajectory.

Yes, we are not providing formal guidance for Q4, but as Amir mentioned, we have a strong backlog in infection prevention approaching $30 million as we enter the quarter. Overall, we maintain that the 300 basis points of growth we discussed for these products remains consistent at this point.

Could you expand a bit more on your comments and what you're seeing in emerging markets outside of China? I think you said you had not seen a rebound. What do you think it will take? And do we have a chance for sort of a pent-up demand rebound there over the next quarter or two? And do you think there's anything sort of structural that you guys need to do to improve trends there?

Yes, of course. We outlined the mix of our business, which is about 70% in North America, Western Europe, and another 10% in China. So when we look at emerging markets outside of China, we are really not seeing a significant rebound. We are seeing a continuation of challenges, as you are well aware of in India, Brazil, and other places. A lot of that is really locally driven due to the pandemic; it's market-driven. What we have been trying to do is consistent with other strategic approaches that we have taken for resources and capabilities around growth initiatives, and trying to position ourselves to be in the best possible position to help the industry, help the practitioners to be ready as this market starts taking momentum coming back to normal. We've done a significant number of trainings, and we're going to continue to do that. We have done some realignment of resources to make sure that we are ready. But the COVID-19 really has reduced significantly the demand. Currency also has had some impact in these geographies around managing the inventory. But we feel really good about the long-run outlook. We think given what our exposure is, I say, by some of the geographies, some of the segment, the majority of our decline has been because of that. But it was anticipated. We're working through them. We want to make sure that we are using this time period to set ourselves up for much better performance in the future. So what we're doing directly is changing our approach, training, educating; trying to help the industry practitioners in those environments to be prepared, continue to doing the emergency work and be ready for the future as we move forward. We have received approval in China from both clinical and manufacturing perspectives. In Australia, we've initiated the process, and our product is available in North America. We are now carefully ramping up in Europe, starting with a small group to ensure they are well-trained and equipped before expanding further. Our strategy is to maintain this approach in Europe and then selectively pursue emerging markets with the greatest potential over time. We have the necessary capacity, our sales team is ready, and our program has demonstrated its effectiveness. We plan to continue expanding throughout Q4 and into 2021 across various regions.

Amir or Howard, I wanted to start maybe in orthodontics. Just curious maybe if you could unpack that upper single-digit bracket and wire growth you talked about in the quarter. Just any sense how much of that was your core business versus share gains that may have stemmed from a competitor exiting the market?

A good part of it is our core business. We think that there are opportunities in there, and there is overlap between what we offer versus the customers that now they have options. We are offering that to them. We're working with those customers, that they are still interested. But a large part of that, I would say, our core customers have seen demand rising and continue to rise. And we continue in order to serve our own customers. It's probably too early to really assess any kind of share gain because of that transition. But we're watching it very carefully, and we're working with customers in local geographies to see what the implications look like. I understand your question, but we have not seen any significant changes actually occur. We collaborate closely with our customers, including dental service organizations, individual practitioners, and universities. To date, there’s no evidence suggesting a shift is on the horizon. In fact, we’ve observed the opposite trend, where many patients still require care, and new emerging issues may be lessening, leading to a greater focus on restorative procedures and implants over time. It’s still early in the quarter, but we anticipate that appointments will continue to fill with new cases and patients seeking pain management and ongoing treatments. Although hygiene remains a challenge, our exposure to this area has been minimal, accounting for less than 3% of our revenue. We believe that over time, this situation will create opportunities for practitioners to address many cases that were postponed. Typically, around 40% of U.S. doctor revenue comes from hygiene. In normal conditions, we would expect to see an increase in pent-up demand, which could positively impact our equipment and consumables, despite the procedures themselves having a limited effect on our overall revenue.

Great. We've been hearing more about the greater adoption of digital dentistry concepts in the COVID world. And can you remind us on what you're seeing in terms of traction there? And on that front, I'm curious, where does your intraoral scanning strategy stand now?

Yes, this is a really important aspect. Dentists are seeking ways to make their practices more efficient. On the digital front, we have been focusing on extensive online training and education, which has proven to be effective. This year, we trained over 250,000 customers. Our efforts in digital imaging and DTX have led to the establishment of an integrated management system that covers everything from diagnostics to planning and execution. I'm quite optimistic about this. Nobel is nearly a leader in digital treatment, offering same-day impact, X-Nav, and DTX placement, along with various software capabilities, particularly around Spark and our ortho business. Our strategy regarding scanners remains unchanged; we aim to be the primary choice for every dental treatment, providing options for a comprehensive portfolio of 3D, 2D, IOS, and DTX to implement this strategy. We also have established partnerships and connections between X500 and soon with 3Shape, ensuring seamless integration of our full portfolio. We are delivering attractive solutions both through our ortho and implant sales force as well as through our partners. Our goal is to create a competitive workflow across the industry. In the long run, being an IOS manufacturer remains a priority, but we've successfully addressed this through partnerships to ensure our customers receive what they need while resolving technical and clinical challenges. Yes. So our current portfolio is a very competitive portfolio as it stands today. We think N1 is a truly differentiator. It's a revolutionary implant process from what we have heard, and from what we are seeing, everybody who's using it is telling us that it's going to be a really revolutionary approach, changing the model going forward. But I also want to make sure that we're not building our overall strategy just based on one product. We have significant presence in this space. We have been improving our operational and commercial execution. We have improved our customer experience, quality, delivery, and we're going to continue to do that. We are doing a significant number of training, helping us in marketing of these products and our overall portfolio. We're going to continue to add additional abutment prosthetic options in order to make sure that we have a broader rollout. As mentioned before, our intention is to make sure that Nobel's implant business is growing mid-single digits over time. All of the activities that we are doing really position us well to accomplish that objective.

And there are no further questions at this time. I would like to turn the call back to management for closing remarks.

Thanks, Angela. Appreciate everyone's time on the call. We'll be around for questions for the remainder of the day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.