My name is David, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to the Envista Holdings Corporation's First Quarter 2023 Earnings Results Conference Call. I will now turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Envista Holdings.

Thank you. Good afternoon, and thanks for joining the call. With us today are Amir Aghdaei, our President and Chief Executive Officer; and Howard Yu, our Chief Financial Officer. I want 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. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations. It will remain archived until our next quarterly call. During the presentation, we will describe some of the most significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, references in these remarks accompany specific financial metrics related to the first quarter of 2023 and references to period-to-period increases or decreases in financial metrics are year-over-year. During the call, we may describe certain products and devices that have applications submitted and pending certain regulatory approvals are available only in certain markets. We will also 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. With that, I'd like to turn the call over to Amir.

Thank you, Stephen. Welcome to Envista's first quarter 2023 earnings call. We appreciate you taking the time to join us today. Despite a volatile macro backdrop, we continue to make progress against our long-term strategic priorities. As anticipated, the first quarter proved challenging with our core sales down 2.4%. The strong growth in much of our Specialty Products & Technologies segment was offset by challenges in China and Russia. Further, we continue to see weakness in our large capital equipment business driven by higher interest rates and lingering economic uncertainty. While the market is dynamic, we continue to focus on our long-term goals of accelerating organic growth, expanding operating margins, and transforming our portfolio. Our team uses Envista Business System (EBS) principles daily to improve our operational capabilities, reengineer existing processes, and continuously drive productivity with the goal of delivering for our customers, their patients, and our shareholders. We're making investments focused on our purpose of partnering with dental professionals to improve patients' lives by digitizing, personalizing, and democratizing dental care. Before I turn it over to Howard to discuss our first-quarter results in more detail, I want to take this opportunity to provide more color on the current operating environment and then offer a quick update on our progress towards our strategic priorities. At Envista, we pride ourselves on being customer-centric. Our leadership team and I systematically engage with our customers and their patients. The EBS concept of 'Gemba' means that we regularly meet with them at the point of impact, at their offices, their operatories, and/or at training events. Our goal is to understand what is happening in real time and ensure that we are meeting the short- and long-term needs of our customers. As we spent time at Gemba, we continuously hear from the dental community that overall patient demand remains resilient. Patients have grown to understand the link between oral health and overall health and they continue to prioritize spending on dental procedures. We further hear that clinicians and business owners in both private and group practices, institutions as well as DSOs remain excited about the long-term prospects of the dental market. They see significant opportunities to grow their business by investing in and expanding their specialty treatment offerings. They further see opportunities to enhance their capabilities by optimizing their workflows and digitizing their offices. While the dental community remains confident in the long term, they also are mindful of the short-term uncertainty driven by higher interest rates, the lingering risk of a recession, and various geopolitical risks occurring around the world. This uncertainty is expected to create a degree of volatility as we move throughout 2023. One area that I think is worth providing additional insights into is the Chinese market. Patient demand in China was very soft in the early part of Q1 as the country navigated its way through the COVID-related slowdown. Starting in March, we did see an acceleration of patient demand as more dental offices reopened and people became more comfortable seeking out care. Overall, we expect patient volumes in China to accelerate throughout 2023. However, we do expect some volatility as we believe some consumers may deprioritize spending on dental care in the short term to focus their spending on travel or other leisure activities that they were less available to them during the pandemic lockdowns. With regards to VBP today, the program is playing out largely as expected. We have seen a significant reduction in prices in the public sector as well as the anticipated spillover into the private market. While it's too soon to be sure, the early indication is that demand for our implants should increase as we pick up additional share in the public sector and the VBP program positively impacts long-term patient demand. Overall, we remain optimistic about the long-term growth of our China business, and we believe that after 2023, China will once again be a growth engine for Envista. Turning to our Q1 progress. In February, we hosted over 1,600 dental professionals in Las Vegas at a sold-out event, Envista Summit. During the event, we provided high-impact training in orthodontics, implantology, endodontics, and digitally enabled clinical procedures as well as introduced clinicians to the latest advancements in dental care. These types of events allow us to engage with our customers to learn, educate, and lead the dental community, ultimately enhancing our ability to drive long-term growth. Our uniquely positioned Orthodontic business continues to perform well, delivering double-digit core growth despite the challenges in China and Russia. Our team in Ultima system is making inroads in both North America and Europe as we convert more customers to this powerful and efficient system. This innovative solution commands a premium price by improving the way Orthodontics move teeth and demonstrates our commitment to innovating for the Orthodontic community. Our Spark Aligner business continues to perform well, delivering a strong sequential growth as well as over 70% year-over-year growth. In the quarter, we added a record number of active new doctors, setting us up for continued growth in 2023 and beyond. Our solutions for implant-based tooth replacements declined low single digits in the quarter, dragged down by significant declines in both Russia and China. Our implant businesses in Europe performed well, and we believe that we are outperforming the market in Europe, driven by disciplined commercial execution. We are benefiting from our focus on providing comprehensive solutions for implant-based tooth replacements. As a result, we are seeing growth in both digital solutions and regenerative materials. The Osteogenics business we acquired last year is performing well, and we are starting to benefit from an EPS driven focus on commercial execution and lean management. Going forward, we expect our implant franchise to grow at or above the market. Adjusted EBITDA margins in the first quarter declined 150 basis points to 18.2%. A temporary decline was anticipated and is primarily driven by lower volumes as well as our long-term investment in growth. Each of our businesses remains focused on using EBS to optimize the operating structure and improve productivity. Our Equipment & Consumables (E&C) business provides a case study in EBS at work. While sales declined in the E&C segment this quarter, our adjusted operating margins increased 110 basis points. The increase was driven by a systematic focus on driving margin expansion through price optimization, temporary cost controls, deemphasizing nonstrategic and less profitable businesses and geographies, and structural cost reductions. We're confident that we have increased the long-term profitability of the E&C segment and expect margins to further expand as the market for large equipment stabilizes and our more profitable intraoral scanner (IOS) business continues to accelerate. We expect margins to expand as we move throughout 2023. And we remain on track to deliver our full-year guide of greater than 20% adjusted EBITDA margins for the year. We will continue to invest for long-term growth while further optimizing our operations to deal with the volatile macro environment. We remain focused on building a stronger, differentiated, and more growth-oriented portfolio. Our two most recent acquisitions, DEXIS IOS and Osteogenics, continued to perform in line with our expectations, delivering combined sales of greater than $20 million in the quarter. As we move through Q2, the DEXIS IOS business will be included in our growth results, followed by Osteogenics in Q3. Combined, both businesses are expected to contribute over 75 basis points of our core growth to Envista in 2023. While we're excited about the strategic moves that we have made to date, we see additional opportunities to further improve our portfolio. We're committed to pursuing a disciplined approach to capital deployment, utilizing our EBS driven M&A approach to manage a robust pipeline of inorganic partnerships and investments and are constantly cultivating new opportunities. I will now turn the call over to Howard to go through our first-quarter financials and provide more details on our segment performance.

Thanks, Amir. In the first quarter, we delivered sales of $627.2 million. This represents a decrease of 0.7% over the first quarter of 2022 on a reported basis. Acquisitions contributed 3.3% of growth, while foreign currency exchange rates negatively impacted sales by 1.6%. Core sales for the quarter declined 2.4%. The year-over-year decline in core sales was primarily the result of weakness in China and Russia, as well as general weakness in demand for our large capital equipment. It is noteworthy that excluding the impact of Russia and China, our Specialty Products & Technologies segment grew 7%, driven by the strong performance in the Spark Aligner business. Geographically, as anticipated, we declined substantially overall in both Russia and China. The decline in Russia was primarily due to unusually strong performance in the first quarter of 2022, as clinicians prepurchased inventory at the start of the conflict in Ukraine. In China, demand was down significantly in the quarter as the country managed through the COVID-related slowdown. As Amir mentioned, demand was very slow in the first part of the quarter but started to recover later in the quarter. We expect activity in China to accelerate throughout 2023. Outside of Russia and China, other markets were mixed. We saw double-digit growth in other emerging markets as well as high single-digit growth in Europe. In North America, sales declined mid-single digits, weighed down by its relatively high exposure to our traditional imaging business. It is important to note that our imaging business had a strong performance in the first quarter of 2022 as we picked up incremental share through our effective supply chain management and were not yet faced with the impact of higher interest rates. Our first-quarter adjusted gross margin was 58.1%, which is down 110 basis points from the prior year. The decline in gross margin was primarily attributable to lower volumes, unfavorable mix due to the slowdown in sales of Specialty Solutions in China and Russia, and continued investment in our long-term growth. Our adjusted EBITDA margin was 18.2%, which represents a 150 basis points decline versus Q1 of 2022. Our adjusted diluted EPS in the quarter was $0.38 compared to $0.47 in the comparable period of the prior year. The lower operating margins combined with an increase in interest expense from higher interest rates drove the reduction in EPS in the quarter. Core revenue in our Specialty Products & Technologies segments grew by 3%. In the first quarter, our combined Orthodontics business grew more than 12%, with Spark continuing to expand rapidly. Our implant tooth replacement business declined low single digits in the quarter, negatively impacted by both China and Russia. Adjusted operating profits in the segment were 21.6% in the first quarter. This is down 60 basis points from Q1 of 2022, primarily due to the lower sales from China and Russia, as well as the continued investment to drive long-term growth. Turning to our Equipment & Consumables segment. Core sales in the first quarter decreased 11.7% compared to Q1 of 2022. The decline in sales was due to continued slowdown in equipment volumes as well as a modest decline in our consumable sales. Our traditional imaging business declined double digits in the quarter with lower volumes across most geographies. The lower growth was partially attributed to strong performance in Q1 of 2022, as well as macro headwinds, including inflation, rising interest rates, COVID-related challenges in China, and the geopolitical uncertainties caused by the conflict in Ukraine. Further, we continue to deemphasize nonstrategic geographies and concentrate our efforts in markets where we can build a long-term sustainable competitive advantage. This allows us to accelerate both growth and margins over the long term. Our new DEXIS IOS business performed in line with expectations in the quarter, and we continue to make investments to set this business up for long-term success. We remain focused on expanding our reach and optimizing our global distribution. Clinicians remain very interested in investing in IOS solutions to help them improve their overall workflow. The DEXIS IOS solution is well-positioned to outperform the market, and we anticipate this business will continue to contribute to our core sales growth in 2023 and beyond. On the consumables side, we declined low single digits with strong growth in Infection Prevention solutions offset by relative weakness from restoratives and endodontics. Globally, we believe that the distributor sellout of our consumable solutions continues to outpace the market. Channel inventories remain healthy, and we expect this business to accelerate throughout 2023. Equipment & Consumables adjusted operating profit margin was 21.8% in the first quarter of 2023 versus 20.7% in Q1 of 2022. This 110 basis points of margin improvement despite the lower sales volume is the demonstration of EBS in action. We relentlessly focused on driving productivity, optimizing our operating structure, and managing price to protect and deliver improving margins. It is important to note that as we move through 2023, the inclusion of a fully integrated IOS business will further support the growth of our Equipment & Consumables business while also positively contributing to our profitability. In the first quarter, we consumed $14.4 million of free cash flow and ended the quarter with more than $575 million in cash. Historically, Q1 is our weakest quarter for free cash generation owing to the seasonality of supplier payments and impact of annual incentive plans. Overall, our balance sheet is strong, and we have the flexibility to pursue additional inorganic growth opportunities when the right assets become available at the appropriate valuation. Now I will turn the call over to Amir to discuss our outlook for the balance of the year and provide closing comments.

Thanks, Howard. Looking forward, we remain confident in our strategy and our ability to deliver our outlook for the full year 2023. We expect core sales to grow low single digits and to achieve EBITDA margins of over 20% for the full year. As we have discussed, we anticipate our core growth to accelerate throughout 2023 as China stabilizes and we benefit from the impact of our acquisitions. Margins are also anticipated to accelerate throughout 2023 as we benefit from a streamlining of the organization and cost reductions, as well as the shift of our portfolio mix toward higher margin products. While we are confident in our outlook for 2023, it is important to note that we do anticipate some continued quarterly volatility as the world continues to navigate through the geopolitical situation related to the Ukraine conflict, consumer confidence in China, as well as the continued impact of interest rate increases and lingering economic uncertainty. Our EBS focus and continuous improvement culture helps us manage this volatility while progressing against our long-term targets. Our priorities remain the same. We will accelerate growth, expand our operating margins, and further transform our portfolio through active and disciplined capital deployment. We are well positioned to be a leader in both Orthodontics and in implant-based tooth replacement. Our complete clinical offerings, including our imaging and diagnostic solutions, will improve the productivity of dental professionals while empowering them to plan and deliver personalized and predictable treatments for each patient. Our purpose is to partner with dental professionals to improve patients' lives by digitizing, personalizing, and democratizing dental care. We're focused on delivering long-term value for patients, our customers, our employees, and our shareholders.

Thanks, Amir. That concludes our formal comments. We are now ready for questions.

We'll take our first question from Elizabeth Anderson with Evercore ISI. Please go ahead. Your line is open.

Hi guys, thanks so much for the question. I appreciate your commentary about sort of the pacing of the year and how that's progressing versus the first quarter. Could you help us understand how that's trending so far in April, for example, how is sort of China doing versus the first quarter and then similarly for both the U.S. and Europe? Thanks.

Thank you, Elizabeth. China, starting in March, we have seen offices opening and people are beginning to seek more and more of a dental support and dental care. So we anticipate—almost as we go through the year, we anticipate that ramp to take place. But I want to clarify this. This is not the same ramp that we saw in 2020 after COVID. There's going to be some uncertainties, but China in Q2 is in a far better place than what we saw in Q1, which was basically for two months, it was just completely shut down. At one point, 75% of our own people had COVID, and we had asked them not to come to work and stay home and take care of their well-being. So, we expect to see better performance as we go through the year in China. April and Q2, we expect to see the impact of IOS becoming part of our core growth, comp for imaging becoming a lot better as we touch on China and Resto and Endo have better performance. So what we have seen in April is continuous expectation and what we had expected in Q2. We're confident as we go through the year. We're going to see both core growth and margin improved sequentially while dealing with some of the uncertainties that are ahead of us.

Got it. That's very helpful. And how in the U.S. and Europe trending versus the second quarter so far versus the first quarter?

We have had a really good performance in Europe in the past six or seven quarters. In fact, both on our Ortho business and our implant business, we have performed very well. We mentioned that our implant business in Europe has been performing, and we think above the market continuously, and nothing that we have seen had changed our position, or our point of view on it. Our ortho business, also specifically on Clear Aligner and Spark business has had a much better run in Europe. A lot of that has to do with the execution of our ability to really put EBS to work geography by geography, country by country, to expand that business. So what we have seen so far in the first four, five weeks of the quarter is a continuation of that performance. We have a small base compared to North America, a really small base of imaging. Majority of our imaging capital equipment is in the U.S., and our consumable also growing above market and has been growing above market in Europe for the past several years, but it's in a smaller base. So overall, Europe continues to perform very well. In the U.S., we have some challenges around execution that we are addressing in specific pockets. We're fixing those. And we expect to see better performance as we go forward throughout the quarter and for the rest of the year.

Got it. Thank you very much.

We'll take our next question from Jeff Johnson with Baird. Please go ahead. Your line is open.

Thank you. Good afternoon, guys. Amir, I think one thing we haven't heard you did a good job, I think, of giving us kind of the implant numbers across most of the globe. And I understand in Europe, they were up nicely and then potentially above market. We got the adjustments out of China and Russia? But I didn't hear anything on the U.S. or the North American business maybe from an implant standpoint. Was that one of those businesses that you're addressing some execution challenges in or how should we think about the implant business from a domestic performance standpoint this quarter?

Thank you, Jeff. If we go back, I want to take us back a couple of years. We looked at the value implant first. We said we had some challenges around multi-branded approach. So we fixed that. Then on customer experience and specifically around our premium business around Nobel, we went after, we delayered the organization, put the structure in place, and as I just mentioned for the past seven or eight quarters, we have seen continuous performance improve in Europe quarter after quarter, continue to perform better and better as we go forward. We're going through a very similar process in the U.S. If you look at our value implant, we have done an incredible job—the management team and the team have done an incredible job going back, becoming a lot more customer-centric. Putting energy around taking care of our customers, solving some of our operational issues, and revamping the portfolio. The result is obvious; it's going to take a little bit longer, but we're going to see a similar approach in North America with our value implant. We have pockets of challenges with our premium implant in the U.S. and following the same recipe that we have done in Europe, detail orientation, EBS at work, customer-centric model trying to solve those issues, making sure that training and education is the top of our priority list. I expect all of us expect to see better performance on implant in North America as we go throughout the year. We know what the source of the problem is. We know where we have had some challenges and we are responding to and executing fairly well. Performance would improve. There are signs that our performance in North America would improve as we go throughout the year.

All right, that's helpful, thank you. And then the other point of clarity, I'd appreciate is just what I think about your comments on consumables down low single-digits. And I think you specifically highlighted a couple of areas of strength there, offset by maybe some challenges in Endo and Resto both. It's kind of the exact opposite of what we heard this morning from one of your competitors that they were up double-digits in Resto and Endo? So if I take your low single-digits and assume Resto and Endo were down, I don't know, mid-single-digits or something just stabilizing. How is there a 15-point difference, I guess, between you and Dent supply and not asking so much on what they did, but it seems like the market would be up then with what they did better. How are you lagging the market in those areas by that extent, I guess, is what I'm wondering?

Yes, really good question, Jeff. A good part of that, we've got to take a look at proxies from one point of view. If you compare the proxies of Q1 of this year versus last year, Howard touched on it. We are somehow managing through that, trying to get ourselves in a better place. We have a really good feel for sell-in and sell-out. If I look at the sell-out, we have information at the distributor level that we can take a look at the sell-out; we’re really confident on the sell-out. We have done ourselves removed out of this situation of inventory versus sell-out. We got that situation a while back. We are in the habit of really looking at what is selling, what's the sell-out look like? We compensate our team very differently. We think it is a temporary situation, what we signed in Q1. We have confidence that overall Resto-Endo, specifically, also what we saw in our infection prevention is going to get back to growth and continue to see the momentum that we have seen in the past. We think this business is low single-digit growth. We have been outperforming the market and as Howard touched on it, really good from a margin perspective. I know the result in Q1. I'm not disputing it, but we are confident that we are able to get the result that we expect as we go through the year in North America as well as worldwide in our consumable business.

That's helpful. Thank you.

We'll take our next question from Erin Wright with Morgan Stanley. Please go ahead. Your line is open.

Okay, thanks. Can you give us an update on the DEXIS iOS business and the traction you're seeing across that business relative to your expectations so far? And generally, how would you characterize kind of CAD and demand trends in this sort of environment?

Thank you, Erin. So hybrid go-to-market approach in here on iOS, so—the reason that we wanted to be in this category is that it's underpenetrated; less than 15% of offices. Ortho offices are a lot more penetrated than general practitioners—people who do Endo, Ortho—I'm sorry, Endo, implant, and other categories. So, we know the market is underpenetrated. What we have seen also the reason that we got into—we wanted to be at the beginning of diagnostics; anybody who walks in the office, having an iOS in there is a productivity gain, but also gives you an opportunity to move to more of a digital workflow approach. So with that as a background, what we did, we have a hybrid approach to our Ortho business, implant business. They do not sell that as independent products, but they have clinical offerings that they can put together and offer that to their customers. That part of the business is really accelerating, and we are very pleased with what we have seen, not only product but also the entire workflow. So we have been able to demonstrate that IOS with Spark works seamlessly. Our IOS and 3D printing with the screenplay worked really well on same-day crown, barriers, and others. So that portion is ramping up pretty nicely around expectations. The rest of that has been through channel execution and empowering the channel. Carestream had a really good presence in some geographies, not really as much of a presence in other geographies. So we have engaged our traditional imaging DEXIS channel, and we are activating them. The activation model looks like after you sign a contract and do training, co-travel, events, marketing activities and then funnel building and the ramp. We're really pleased with what is taking place with the top five, six partners that we have in the U.S. And we are focusing on the top 20, 25 partners in Europe. We're ramping those up. We're beginning to see the momentum getting built up. It is ramping up. Quarter 1 was better than Quarter 4 so far. We're getting, accelerating this, and we think it's going to be an important part, as we mentioned, Osteogenics plus IOS are going to be an important part of our growth trajectory this year, over 75 basis points of a growth above fleet average margin. So we're really pleased with the work we have done, it is picking up, and we're going to continue to use EBS to even get it better, higher margin, better product categories, and better execution. That's what you can expect from us.

Okay. And then a quick one on Spark. The growth is strong, but do you have any metrics around reorder rates, retention rates across your Spark customers? And any metrics you can give, I guess, on that front or where you stand now and also where you hope to get to in terms of market share across that specialty market you targeting?

So year-over-year, our business is up 70%. So that 70% is a really good indication of the number of cases that we received, the number of active doctors. We had a record number of new doctors using Spark in Q1. So the way we are approaching this, and we have been added since 2017. A small number of people, we go to a specific geography. We get a small group of people, 5, 10 at the time. We teach them, help them, work with them, ramp them up, make sure that they are really in good place, then we go to the next geography, next territory. This model has really worked for us very well. The reason that we ramped up so quickly in Europe is that we had replicated what we did in Spain, in France. We're taking that into the next geography. So what we are seeing in here, we mentioned that before that from case zero number one to 100,000, it took us almost three years. From 100,000 to 200,000, it took us close to about nine months. 20,000 cases to 300,000 cases, 5.5 months, and we are approaching 350,000 cases. And this ramp gives you a really good indication of the number of dentists that we are signing up. After they get signed up and the volume with existing dentists continues to go up. So active doctors, we manage that very closely, a number of submissions, number of cases shipped, and the overall production output. All of these, every one of those measures are double-digit growth, quarter-to-quarter.

Great. Thank you.

We'll take our next question from Jon Block with Stifel. Please go ahead. Your line is open.

Thanks, guys. A couple of questions, then I'll break them up. The first is on VBP. And I thought in the prepared remarks, you said you had expected to spill over from public to private. And maybe I have this wrong, but I thought you expected that pressure to remain largely within public and sort of that was a different take from a couple of your competitors. So can you clarify and maybe more specifically and importantly, is VBP in China playing out as expected for you guys when we think about the low single-digit growth, core growth for the full year? And maybe just as a tack on to that, where are we with VBP specific to Ortho? Thanks.

Yes. Happy to do it, Jon. So let me just kind of frame this again based on what we have said before. We have about $100 million of implant business in China and about $75 million of Ortho business. We have started moving to more of a private sector almost three years ago prior to COVID, we moved our business and focused most of our energy on the private sector. Almost 70% of our business today is in the private sector. So that's just to give you a little bit of a frame. We knew and anticipated, and it has pretty much played out exactly at what we expected that this is going to start on the public side, but it's going to have a spillover on the private side. So let me talk about the implant, and now I tell you about Ortho. We are selected as one of the winners, both on the premium as well as on the value side, which means the initial thing we said we should expect higher volume. What are counting on it? But what we are counting on is the impact on our current business and the pricing as well as the volume. So that is so far is playing out exactly as we expected. If we get higher volume, that would be an incremental business that we can expect going forward. We think that this is going to continue—the spillover has ramped up and we are beginning to see the full impact of it. On the Ortho side, so far, less than 10%, 15% of our business is impacted. And to a large degree, it's because of how it's been executed and implemented. We don't have much of a business on the Clear Aligner side in China, and that has always been intentional. We wanted to get momentum going in some geographies we prioritize. We wanted to establish a standard work. But our core business is the only non-Chinese multinational that has been approved and accepted as part of the VBP process. So we expect that this is going to have some impact, but the impact is at least in the short term is not going to be as profound as on the implant side, putting it all back together. We have communicated that this is going to have about a $20 million impact in our business has been in top line as well as the bottom line in 2023. So far, we haven't seen anything that tells us otherwise. If we get any medium, long-term increases in the volume, then great. That will provide additional access to care for people, and we will see the impact of it in a positive format. That $20 million headwind we consider both impact on public as well as on the private side. This compares purely based on 2023 sales and margin versus 2022 sales and margin.

Okay. That was great. There was a lot of color. And for the second question, I apologize in advance because it's a little direct and it's long. But for E&C, if I go back to the time of the IPO, it was supposed to be like a GDP plus or minus business, not. And I get it right? We've had a pandemic. We've got the interest rates. We've got potentially a recession right around the corner. But what is this business? Every quarter, its weakness overshadows your SP&T business. It's down six quarters in a row. This quarter, it was down 12% off a negative 3% comp. You had some divestitures to try to strengthen it. You're through that. And maybe that's just opinion, but looking forward, with DEXIS IOS coming into organic beginning in April, I believe, were now imaging headwinds soon being lab. Can you just frame what this business is for investors going forward? Can you better put guardrails around it? And then Howard, just as a tag on, you guys are sticking to the low single-digit growth. I know you want to stay away from specific 2Q guide, but is 2Q positive or negative as we think about the ramp in the back part of the year? Thanks, guys.

Of course. So let me add this, Jon. I've been around dental now—Howard and I over 8 years. We pretty much recognized this early in the process that there are some categories that they are becoming more and more commoditized, differentiation becoming more and more difficult. If you look at competitors in that space because of this lack of differentiation, the price has become a lot more aggressive in those areas. If you look at—I'm giving you one example. The number of players on the imaging side, and let's take China as an example. Compared that to five years ago, ten years ago, how many new players are in there and what the pricing is taking place. It's a fact, a reality; it is what has taken place. And we—that's the reason we walked away from Pelton & Crane. That's the reason we carved out KaVo Treatment Unit, Instrument, and we put that outside. Then we kind of replaced it, continue to replace it. What we have done in the past probably 12 months or so, a lot more aggressively is on the higher equipment business. So think about it: about one-third of this business is contract software and that kind of annuity. The other two-thirds to a large degree is either de novos that DSOs are building and adding capacity or renewal that you have all the product process that has been there over six or seven years that you want to replace it. But de novos are not taking place as rapidly as they did before. Then you have some challenges around getting a knowledge and paying 6% or 7%. So it has an impact on higher value-add, higher expense CapEx work. On the other geographies that we talked about when the differentiation is not really that clear, what we have been very thoughtful, very specific. We are exiting some product categories, some geographies intentionally, to try to make sure that this business is profitable and differentiated. You're seeing the decline that you're seeing, but you're seeing the margin improvement. At some point, and we are getting to that point very closely. That's the business we want to have. There is no more exit. There is no more moving away from it. That business, what is remaining, I'm talking purely on the imaging DEXIS side. We would then have an opportunity to build around it and try to create differentiation and build a momentum and workflow capabilities that we can really see the benefit of the growth on it. On the consumables side, we feel really good about that business, high margin. We have had momentum. We have outperformed in the past several quarters. We think Q1 is more of an anomaly. We'll get it back on track. This is a business we do have the guardrail around it. We know it's intentional how we have gone through it. We are going to get it in a stable situation. We're going to continue to improve it going forward. The portfolio shifts that we have done, not only inorganically, but organically, it's going to put it in a far better place going ahead than what we have seen in the back. Jon, we are looking a little bit of it long term. We're trying to see what 2023, '4, '5, '6 look like. If you don't take some of these pains now, we're going to continue to deal with these challenges going forward. So we have decided to really be more aggressive in this portfolio shift, geography shift to set ourselves up for the long term we have in 2026 that we said we're going to be high single digit, 22.5% margin. We're not moving away from it. In order to get there, we have to make some of this decision in interim.

Yes. And Jon, I mean you're right, we don't typically give guidance on a quarterly basis. What we have said and continue to feel is that, hey, our core growth as well as our margin profile will improve throughout the year. That being said, I think that we will deliver low single-digit growth in the second quarter. That's consistent with the guide. We look at scenario planning here on a consistent basis. We look at the macro environment and then contemplate our company-specific opportunities and risks. And we still feel good about the full year, and we think that things will improve here in the second quarter.

Thanks, guys, I appreciate all the color.

Of course.

We'll take our next question from Michael Cherny with Bank of America. Please go ahead. Your line is open.

Afternoon, thanks for taking the questions. Maybe a quick follow-up on I'll try again with Jon's last comment, but again, without being able to give quarterly guidance, is it embedded though, in the full-year low single-digit guidance that you'll be exiting the year with growth in E&C?

We haven't gone down the path of providing guidance on a specific segment of the business. But I can tell you this that we're trying to build a portfolio that every part of it adds to the capability of the overall business. We want to be the number one player on the Ortho side with Orthodontics. In order to do that, outside the product itself, the digital transformation, IOS plays an important role. We want to be the number one player in the end-to-end tooth replacement implant base. In order for us to do that, the imaging consumable plays an important role, and we got to consider organic as well as inorganic activities. But consumable business by itself, we are in more than 90% of our offices worldwide, 130 years of track record really differentiated product. We feel really good about that, and we have finally kind of gone over the infection prevention, inventories and use is in a really good place, low single-digit business. This is what we expect, and that's what we hope to get. The changes that we described on the imaging side, we hope that it's going to come to a transformative stage that we expect by the second half of this year. The low single-digit performance—it's going to be really hard when you have part of the business being declining double-digit. That would be really difficult to do that. So, we have contemplated what changes you need to take place to be able to land based on the guidance that we have provided. We feel really confident and good at this point about the guidance that we have provided.

I appreciate that. And so maybe I'll flip to the complete opposite side of the performance in the quarter and that being Spark. You talked about the record new number of doctor adds. Can you talk about the education that you're going into doing with these docs? I assume these are not net new doctors using Aligners for the most part? So a lot of these wins, I'm guessing are displacements, please correct me if I'm wrong there, but how does that education process go? And what are the key drivers that allow you to go in and continue to put up these incredibly strong growth numbers?

Yes, thank you, Mike. And so, we are purely focused on orthodontists. We're not in a direct to consumer. We're not a stop in anybody in the GP area to come and buy a Spark, but our focus is on Orthodontics: 8,000 of them in the U.S. and about 20,000, 25,000 worldwide. Orthodontists, they know how to move teeth. One-third of all the Aligners today worldwide are placed by Orthodontists. They're the first ones who adopted Clear Aligners. So it's not education; it's not about Clear Aligner is a good answer. It's about the combination treatment. It's about case, it's about technology. It's about changing the workflow in offices. So the approach that we have, we have some key speakers in different geographies. We have people that have done more than 1,000 cases that develop protocols, and they are able to teach and share their best practices. That's the value of Envista in some of the other places. We go to a geography; the sales organization rally the Orthodontists, their territories, we bring 50, 100, 200 people in one of these training programs for two or three days. We share best practices. We show the technology. We show the integration with diagnostics, and then we follow up with them. We follow up and we get them to sign up for the first case. We go to their offices. We teach them how to do that. We provide network. We provide support to them. We get them to the third case. By the time they get to five or six cases on a monthly basis, we know that they are committed, and we continue to provide personalized support to them. We have been in this space for 35 years. This is not a new business for us; the same group of people that have made Damon successful with more than 20% market share have grown this business mid-single digits for the past several years. The same group of people are providing different set of products to the same customer base. Majority of them have been the ones that they have either been using competitors or they haven't been using it as much. Now they have a choice of having a combination of treatment that they have in their offices, and they can offer. Our job is to give them choices. What we hear from them, they're treating a lot more patients. They're very happy with the product that they're getting, and they are telling their friends and people that they follow them that this is the product of the future, technology-wise, product-wise, software support. That's how we create differentiation in here, and we intend to just continue to expand it as we go forward, geography-by-geography.

Great, thank you.

We'll take our next question from Brandon Vazquez with William Blair. Please go ahead. Your line is open.

Hi everyone. Thanks for taking the question. The first one, I just wanted to ask on kind of the first quarter performance relative to your own expectations just because it came in a little bit below consensus, but of course, you don't really give a hard guide to kind of a quarterly basis. So curious how the quarter trended relative to your own numbers and what it means for your expectations of where you would fall within your full-year guidance?

So just to give you a little bit of a feel, the combination of China and Russia had close to about 200 basis points of negative growth in Q1—close to about 200 basis. So take a look at it; we looked at the entire business, what we could forecast and predict, and we had a really good feel for what we expect as we go forward. The imaging part delivered a little bit less than what we expected. We know exactly where and what to do about to turn it over. But from an expectation perspective, that significant drop on China and Russia was higher than what we had expected. We knew it was going to be challenging, but that 200-basis point is something that is just incredible, and it was really hard to deal with it going forward. But it's not far from what we expected. Overall, the rest of the business had a really good handle on it. We had anticipated that this is going to be challenging. We knew China is going to ramp up over time. And Russia continues to be a little bit unstable; we really do not know exactly what to expect in here. Q1 of last year, just to keep in mind, because of anticipations of war in Ukraine, there was tremendous amount of buying in Russia that took place to really stockpile that going forward. So we had a little bit of a proxy challenge too, not only in Russia, but on equipment anticipating. If you take a look at the interest rate changes, it started about March of last year. We were able to deliver, continuously deliver despite some of the challenges around the supply chain; we had an incredible imaging business in Q1 of last year. So proxies played a really important role in here as well.

Okay, thanks. And then just as another follow-up. The EBITDA reaffirming guidance for greater than 20% was positive. But kind of doing the math on the cadence of the year, if you just kind of assume sequential improvements, maybe one or two points each quarter to get to that full-year number, you kind of need to exit at a pretty strong number? Consensus has like 21.5% and maybe even need to be a little more given Q1 was a little bit below the Street. That seems pretty strong. Is this—directionally correct? You'd be exiting this year at a pretty solid, if not one of your strongest EBITDA margin quarters that you've ever seen?

Yes. Brandon, what we've said is that we're going to continue to improve on the margin throughout the year. So you'll see improvement here in Q2 and then particularly in the second half clearly, to get to that 20% or north of that adjusted EBITDA number will require us to deliver. We have plans to execute on getting those standard margins as we move throughout the year.

Okay, thanks for taking the questions.

Thank you.

Okay. I think we're out of time now. So I really appreciate everyone joining us today. Thank you very much, and we look forward to connecting with you over the balance of the quarter. Thank you.

This does conclude today's program. Thank you for your participation and you may now disconnect.