Envista Holdings Corp Q1 FY2024 Earnings Call

My name is David, and I will be your conference call facilitator this afternoon. At this time, I'd like to welcome everyone to Envista Holdings Corporation's First Quarter 2024 Earnings Results Conference Call. I will now turn the call over to Mr. Stephen Keller, Principal Financial Officer of Envista Holdings. Mr. Keller, you may begin your conference call.

Good afternoon, and thank you for joining the call. Today, Amir Aghdaei, our current President and Chief Executive Officer, is with me, along with Paul Keel, who will take on the role of President and CEO later today. Since this is Paul's first day with Envista, Amir and I will lead the call and manage the Q&A session afterwards. Before we start, I want to point out that our earnings release, the slide presentation accompanying today's call, and the reconciliations and other information required by SEC Regulation G regarding any non-GAAP financial measures discussed during the call are all accessible on the Investors section of our website, www.envistaco.com. The audio of this call will be archived on our website under Events & Presentations later today and will remain available until our next quarterly call. During the presentation, we will highlight significant factors that influenced our year-over-year performance. The supplemental materials will detail additional factors affecting our year-over-year results. Unless specified otherwise, references to company-specific financial metrics pertain to the first quarter of 2024, and period-to-period financial metric changes are year-over-year comparisons. We may discuss certain products and devices that have pending regulatory approvals or those available only in specific markets. Additionally, we will make forward-looking statements as defined by federal securities laws, including predictions about potential future events or developments. These statements are subject to various risks and uncertainties outlined in our SEC filings, and actual results may differ substantially from any projections made today. These forward-looking statements are relevant only as of the date they are made, and we do not undertake any duty to update them, except as required by law. Now, I will hand the call over to Amir.

Thank you, Stephen. Good afternoon, and welcome to Envista's First Quarter 2024 Earnings Call. We appreciate you taking the time to join us today. Before we discuss our first quarter earnings, I would like to take this time to quickly discuss our leadership transition. In late February, the Board announced that they were launching a process to find my successor to lead Envista through the next phase of our development. At the time, our Board indicated that they were looking for an accomplished public company CEO who had successfully run complex multinational and multidivisional businesses. Ideally, the Board wanted to find someone who had experience in dental or medtech, with a strong commitment to continuous improvement and lean operating principles. They were looking for a unique candidate who could build on our legacy and further accelerate our vision of digitizing, personalizing, and democratizing dental care. We're excited to formally introduce you to Paul Keel, who will be appointed President and Chief Executive Officer later this afternoon. Paul joins Envista from Smiths Group, a U.K.-based engineering and technology company with annual revenue of around $4 billion. During his time at Smiths, he transformed the portfolio through disciplined M&A and organic growth investments. Prior to Smiths, Paul spent 16 years at 3M, where he had a variety of roles, including leading both medical and dental businesses. Before 3M, Paul spent time at GE, General Mills, and McKinsey. Paul's background, experience, and track record make him uniquely qualified to lead Envista as we move forward. Paul, welcome to Envista.

Thanks, Amir. I want to start by thanking you for all you have done for Envista and the dental community. I have known and admired Envista and its predecessor companies for many years and have been impressed with everything that you and the team have accomplished over the past decade. In addition to establishing Envista as a publicly traded company, you've advanced the portfolio, strengthened operations and articulated a clear and compelling vision for the company's future. It is an honor and a privilege for me to now take over the leadership of Envista as we move into our next phase of growth. Before I turn the call back over to Amir and Stephen, I'll take this opportunity to let you know why I chose to leave a high-performing company in Smiths to join an equally wonderful company here at Envista. First and foremost, I am passionate about the powerful mission of improving patients' lives that is shared by all who participate in the dental industry, including my colleagues, customers, peers, and partners. Innovation has been a constant pillar across my career and Envista is a company where technology clearly matters. Above all, Oral Care is a patient-centric business where a relentless focus on customers is a clear strength of Envista that serves all stakeholders. My focus over the coming weeks will be threefold: customers, colleagues, and operations. With respect to the first, I'll hop on a plane next week for the Envista Summit in Barcelona, where I'll connect and reconnect with customers and partners. I have heard from many already and am grateful for the warm welcome. In terms of colleagues, I couldn't be more impressed with the leaders that I have met thus far and I'm looking forward to engaging with the entire organization. We are focused on recruiting a new leader for Nobel Biocare as well as a permanent CFO, and we're encouraged by the prospects. In relation to operations, I'm a lifelong believer in the compounding power of continuous improvement. I learned this firsthand at GE and 3M, and we implemented it effectively at Smiths. No one does this better than the Danaher family of companies. I will start my own EBS immersion shortly after this call, building on my experiences over the last 30-plus years. Envista is an amazing company with leading positions in all key oral care segments, deep and distinctive global capabilities, enviable gross margins and cash characteristics, and a world-class team. I believe there is significant opportunity to create value for all stakeholders. I understand the work we have ahead and I am energized by the opportunity. I believe in this company, and I have voted with my feet. Much more to come in the weeks and months ahead as I begin to meet and engage with as many of you as possible. And with that, I'll turn it back over to Amir.

Thanks, Paul. Turning to our results. The first quarter proved challenging as we delivered modest growth while continuing to prioritize investments to drive long-term growth and profitability. In the quarter, we saw core sales growth of 0.4% and achieved an adjusted EBITDA margin of 14%. The lower margin was driven by unfavorable mix, coupled with the strategic investments intended to reignite growth in our North American implant business and drive margin improvements in Spark. While we haven't hit the inflection point, we are confident that our investments will drive long-term value creation. Before I turn it over to Stephen to discuss our first quarter results in more detail, I want to take this opportunity to provide additional clarity on the current operating environment and then offer a quick update on our progress towards our strategic priorities. Globally, while the macroeconomic environment remains largely stable, we continue to see mixed trends across the dental market. Overall, patient traffic remains resilient. However, demand appears to be skewing more towards basic hygiene and restorative treatments. Demand for higher-end specialty procedures, including adult orthodontic cases and full arch implant restorations remains more muted. Furthermore, private practice clinicians and DSOs remain cautious about near-term investments in both equipment and clinical-level inventories. Despite some of the near-term challenges, we remain cautiously optimistic about demand trends in 2024. In the long term, we are confident that patients will prioritize dental care and that clinicians will proactively invest in areas that help them digitize their practice, making them more productive and ensuring they can provide high-quality, personalized care. Looking at Envista's progress in Q1, our orthodontic business continues to outperform the market, driven by sustained performance in Spark clear aligners. During the quarter, we saw over 15% growth in Spark with double-digit sequential growth in the number of active doctors. Our growth remains widespread, with robust progress in both North America and Europe as well as rapid expansion in our emerging markets. We believe that Ormco's comprehensive portfolio, which includes brackets, wires, and aligners, along with our focus under orthodontic specialists, creates a sustained competitive advantage and a more stable business with ample opportunity for long-term share gains. Our implant business declined modestly in the first quarter as very strong growth in China was offset by slightly weaker market demand in Western Europe and continued underperformance in North America. As we have discussed, we are taking aggressive steps to address our commercial performance issues in North America. We have overhauled our commercial leadership team, are upgrading our training and education capabilities, improving our marketing, and adding significant commercial resources to help accelerate our growth. Utilizing our European playbook, we have refocused the sales team, refined our priorities, enhanced our standard work, and rolled out proven sales tools to drive growth. In the first quarter in North America alone, we provided training to over 3,000 clinicians and clinical staff members. We further increased the number of smart courses aimed at developing and supporting the referral networks of our specialist customers. While it's obviously too early to declare victory, we are confident that we are taking the right steps to address our performance issues and believe that our strong brands, leading product portfolio, and dedicated community of implant specialists position us to return to market-level growth as we exit 2024. While our adjusted EBITDA margins were below historical levels in the quarter, we are steadily making progress against our long-term goals. The Spark team continues to drive improvements in long-term profitability by focusing on pricing, portfolio management, and manufacturing cost reductions. In the first quarter, we successfully held six President Kaizen events in four countries targeted at driving automation, digitization, and productivity across order entry, design, and manufacturing. We further redesigned our packaging to improve the customer experience while reducing both material and shipping costs. Our continuous improvement actions have resulted in significant reductions in our production cost per aligner. The team remains focused on driving operational improvement to bring Spark's margin to our fleet average. Outside of Spark, we took action to streamline our business and reduce costs across the portfolio. We expect to see the impact of these cost savings as we move through 2024. One of our priorities remains building a better, stronger, and more growth-oriented portfolio. A primary component of this goal is continuing the transformation of our traditional equipment business into a comprehensive diagnostic solution business, combining best-in-class imaging solutions with industry-leading AI and diagnostic capabilities. In Q1, DEXIS launched its dental implant ecosystem, giving clinicians the ability to manage the entire implant workflow from diagnosis to delivery with one integrated tool set. Additionally, the recently released updates to our DEXIS IS ScanFlow software further expand our AI capabilities to boost clinician productivity by automating precise data capture and simplifying key steps in case planning. With these tools, clinicians can now efficiently digitize the soft and hard tissues in the oral cavity for fixed, removable, or implant cases. As DEXIS evolves into a more differentiated solutions-focused business, we have made the decision to concentrate our efforts on geographies and product categories where we have the most competitive advantage. While this has created some short-term headwinds, it should position us for faster growth as we move forward. We believe our improved focus is already starting to pay off as we saw solid growth in our North America business in Q1. Despite continued softness in demand for large equipment, we expect our North American diagnostic business to deliver mid-single-digit growth for the full year 2024. Returning to full-year growth in North America signals an important turning point in the evolution of our Equipment & Consumables segment. I will now turn the call over to Stephen 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 $623.6 million, on a reported basis, which represents a slight decrease over the first quarter of 2023. Adjusting for the impact of currency exchange rates, core sales for the quarter grew 0.4%. This reflects growth in our Specialty Products and Technologies segment, offset by a slight decline in our Equipment & Consumables segment. From a geographic perspective, our developed markets declined 1.7%, with North America and Western Europe declining by a similar amount. Our emerging markets grew 10.2% in the quarter, with very strong growth in China, offset by continued volatility in Russia as well as weaker demand in Latin America. Our first quarter adjusted gross margin was 57.4%, a decrease of 70 basis points compared to the prior year. The decrease in gross margin was driven by unfavorable product mix and VBP-driven price reductions. While our gross margin declined year-over-year, we did see sequential improvement driven by higher sales of consumables, reduction in Spark manufacturing costs, and our other productivity initiatives. Our adjusted EBITDA margin for the quarter was 14%, which is 420 basis points lower than in Q1 of 2023. The lower adjusted EBITDA margins were partially anticipated and primarily driven by lower gross margins, unfavorable geographic mix, and significant investments in both Spark and the turnaround in North American implants. Our first quarter adjusted diluted EPS was $0.26 compared to $0.38 in the comparable period of the prior year. Core revenue in our Specialty Products & Technologies segment increased by 0.8% compared to the first quarter of 2023. Solid growth in Western Europe and very strong growth in emerging markets was offset by declines in North America. Within this segment, our orthodontic business grew low single digits with Spark continuing to outperform. Our Brackets & Wire business declined mid-single digits as solid growth in emerging markets couldn't offset the weaker demand in developed markets. Despite slower growth in the quarter, we remain confident that our orthodontic business is outperforming the market, with clinicians continuing to value our comprehensive portfolio, and our focus on the orthodontic specialist. Our Implant business declined modestly in the first quarter as strong growth in China was offset by underperformance in North America. Encouragingly, our Value Implant business grew in the quarter, driven by strong growth in both Western Europe and China. For the first quarter, our Specialty Products & Technologies segment had an adjusted operating profit of 15.1%. This is down 650 basis points compared to the same period in the prior year, with the decline largely due to unfavorable mix, the pricing impact of the China VBP program, and significant investments in our North American Implant and Spark businesses. As discussed, we continue to make substantial investments in our Implant business to set us up for long-term growth. Investments in the quarter included adding over 60 sales and marketing resources, significantly increasing our training and education activities, and making one-time investments in a deep analysis of our market and our customer segmentation. Turning to our Equipment & Consumables segment, core sales in the first quarter decreased by 0.2% compared to the first quarter of 2023. Our Diagnostic business declined mid-single digits in the first quarter versus the prior year, primarily driven by weakness outside North America. Encouragingly, our North American business grew as demand stabilized. Emerging markets saw a large decline in the quarter, driven by the combined effect of muted macro conditions and our deemphasizing of nonstrategic geographies and solutions. Through these efforts, we continue to refine our focus and concentrate our energy in markets where we can build and maintain a sustainable competitive advantage. Our consumable business grew low single digits in the quarter, driven by the stabilization of the North American distribution channel. Patient demand in North America remains resilient, and we continue to strengthen our partnerships with our distributors to drive sell-out. Outside of North America, weaker patient demand led to some softness in sell-out. As we move through 2024, our focus remains on partnering with our distributors to drive sell-out of our solutions. We will continue to actively manage price, and we believe that we are well positioned to gain share in our focus markets. Equipment & Consumables adjusted operating profit margin was 21.7% in the first quarter of 2024 versus 21.8% in Q1 of 2023. As anticipated, we saw a greater than 200 basis point sequential improvement in operating margins as our consumables business stabilized, and we improved our overall sales mix. As we move through 2024, we continue to streamline our operations and sharpen our focus in this segment, and we believe that we are well positioned to accelerate growth and improve operating margins. In the first quarter, we generated free cash flow of $29.3 million, which was a significant improvement compared to the first quarter of the prior year. Our increased cash flow was driven primarily by improved vendor management, lower incentive compensation payments, and lower CapEx. We continue to focus on improving our free cash flow and remain committed to our longer-term goal of delivering annual free cash flow in excess of net income. I'll now turn the call over to Amir to provide some closing comments.

Thanks, Stephen. We remain confident in our strategy and long-term outlook. The dental market is attractive, underpenetrated, and supported by solid growth trends. Our businesses are strategically differentiated, and we have a proven track record of executing in a dynamic environment. We have conviction in our ability to create meaningful value over the long term. The Envista team remains focused on three key priorities to improve our short-term execution and build the foundation for long-term value creation. First, we plan to further accelerate our Orthodontic business by providing orthodontic specialists with a differentiated and integrated suite of treatment options, including Brackets & Wires and Clear Aligners. We will continue to drive sequential margin improvements in our Spark business. Our second area of focus is driving growth of our Implant business. Globally, we plan to position our Premium and Value implant franchises to provide full solutions across the implant workflow, including regenerative and prosthetic offerings. We will utilize our premier diagnostics and digital capabilities to create differentiation and win customers. Our top priority in this effort is to improve our commercial execution in North America. We have made targeted investments and now see a path to reinvigorating growth. Our goal is to be growing at or above the market as we exit 2024. Finally, as we move through 2024, we will further utilize the Envista Business System, EBS, to optimize our cost structure. We intend to reduce structural costs by an additional $30 million annually, with the full year impact being realized in 2025. Our continuous improvement culture will allow us to further consolidate our operations, streamline our corporate functions, and drive out G&A spending across the organization. Our purpose is to partner with dental professionals to improve patients' lives by digitizing, personalizing, and democratizing dental care. We remain focused on delivering long-term value for patients, our customers, our employees, and our shareholders. On a personal note, I would like to take this opportunity to thank the Envista team, our customers, our partners, and our shareholders for allowing me to lead this business over the past nine years. I'm proud of what we have accomplished, and I'm committed to the long-term success of Envista. I will remain both a senior adviser and shareholder and remain excited for the future of Envista.

Thanks, Amir. That concludes our formal comments. Amir and I will now be available to take your questions.

We'll take our first question from Elizabeth Anderson with Evercore.

Congrats on your next endeavors, and it's really exciting to discuss going forward. If we can talk about one thing that stood out to me in the press release and in the call, it is that there were some scattered comments about the forward demand environment for the rest of 2024. However, there was no guidance reiteration or update. I was wondering if you could comment specifically on the guidance for 2024 and for the second quarter.

Thank you, Elizabeth. Given the leadership transition, I think we need to give Paul a little bit of opportunity to assess the current situation and build a viable plan for the balance of the year and the long-term outlook. In the meantime, Envista remains focused on our key priorities, which are to further accelerate our orthodontic business, continue to expand Spark margins to bring it to fleet average, and drive Spark growth. Secondly, continue to accelerate our implant business by turning around the North American implant. We would like to get back to market growth by the end of 2024 and at or above market growth in the rest of the world, as we have proven that we can do that. I believe further optimizing our cost structure will give us the freedom we need to improve our structural costs by over $30 million, with the full impact being realized in 2025 and continue to drive EBS to improve our execution going forward. Thank you, Elizabeth.

Got it. And maybe just as a follow-up. Obviously, you guys talked specifically on some details about the investments made in the first quarter. I hear what you're saying about the 60 headcounts in implant. Can you talk about the level of spending that entailed and any other revenue driver investments you made in the quarter? And how to think about the cadence of that for the second quarter? And maybe if you could speak further along, that would also be helpful.

Sure, Elizabeth. Yes, we obviously made some significant investments in the quarter, some of which are onetime and some of which will continue on. So we probably made around $10 million worth of investments in the quarter across the areas that we talked about. This includes commercial resources, a little more on the upfront for training and education, some partnership programs with some of our distributors, as well as some of the activities we're doing on the Spark side to drive margin improvement. We also incurred some onetime expenses around verifying our customer segmentation using third-party resources. I believe most of the costs will repeat, with about 20-30% of it being one-time in nature, while the rest will be invested continuously in our run rate going forward. Obviously, the goal here with these investments is to grow our Implant business, specifically in North America to achieve growth at or above the market. It's a highly profitable business and as soon as that performance turns, those investments will pay for themselves very quickly.

Maybe I'll just jump right into Spark. Amir, I thought I heard a number of up 15% year-over-year, which is clearly taking share to your point. However, I think it was down a bit quarter-over-quarter from Q4 '23 to Q1 '24. Angel has been out there, predominantly in the orthodontic channel, which is where you reside. They've been pushing harder into EMEA and the U.S., where you've been taking share. Could you first discuss my numbers or perhaps verify them or clarify where they may be wrong? Secondly, what are you seeing from that particular player which seems to be the new kid on the block within the U.S. and EMEA?

Yes. Thank you, Jon. To reiterate, Spark grew over 15% year-over-year, which indicates strong revenue growth. However, it did not grow sequentially. One key reason for this is that Q1 is typically slower, but it ramps up quickly over time. The sequential double-digit growth in the number of active doctors gives us confidence that this business will continue to grow. We further see noticeable sequential growth in the number of primary submissions. The way we look at this business is by geography and what we call our Spark growth model, which measures how many people we train, how many start signing up, and the number of cases they place within 30, 60, or 90 days. We are beginning to see a widespread expansion, not only in developed markets but also in emerging markets, with notable strength in Q1. We are confident in the approach we've taken and believe we will continue to grow this business. The product has proven to be superior and our level of support and capabilities are quite robust. However, we must balance that growth with margin expansion as we progress through the year. The team is excited about the possibilities ahead and we feel really confident about the work we've done in the past five years or so. I'm not sure exactly who you are referring to as the new kid on the block in various geographies. From our perspective, we have focused on the orthodontist market, and that's where our attention has been. We still see plenty of room to grow. To provide some additional insight, less than 50% of the traditional Ormco bracket and wire specialists today are active Spark customers. So there is plenty of opportunity in that space, along with many other opportunities to pursue in areas we have yet to enter.

Amir, maybe just one more question. Elizabeth asked about the SG&A. Stephen, quite honestly, I'm a little bit confused regarding what component was one-time. I'd like to follow up offline on that. Also, could you give us more color on the gross margins? I thought that was the highlight for the quarter, with solid Q-over-Q improvement, despite a higher cost base as you reinvest in the business. Could you help us understand the trajectory of gross margins from here? Will we use the Q1 '24 level as the new starting point and do you expect those to move higher throughout the year? I'm trying to balance faster Spark growth in a lower-margin division, while also improving those particular margins.

Yes, sure. As you noted, there is some seasonality in the gross margins. Generally, you could expect our margins to improve as we go through the rest of the year, along with seasonal patterns. Fundamentally, you're going to see continued improvement in Spark margins as a key driver of that improvement. Additionally, to the extent that we begin to grow our North American implants back to market-level growth, that will also contribute positively to margins. It's worth mentioning that Q4 margins were significantly depressed, primarily due to lower sales of consumables in that quarter, partly resulting from a cybersecurity issue that impacted our North American distribution channel. You should anticipate positive margin progression throughout the year. Regarding the SG&A, to clarify, the $10 million of investments we made includes about 70% for ongoing initiatives and approximately 30% considered one-time in nature. I hope that clears things up a bit.

Paul, welcome. Amir, thanks for the conversations over the years. I've appreciated your insights in the dental space. Stephen, let me just ask about the $10 million SG&A investment. Last quarter, we heard there were some added investments that wouldn't be leveraged necessarily in Q1 but might be leveraged going forward. It sounds like there were additional investments on top of the Q4 investments. The $10 million base in Q1, could you give us a sense of how much has been invested over the last six months? And how much of that continues? Again, without guidance, we're trying to figure out a plus or minus to the 14% EBITDA number in the first quarter and our outlook for the next few quarters.

Yes, sure. Some investments made in the fourth quarter involved hires that occurred throughout the quarter, and in this quarter, we have seen the full quarter impact of those individuals. We likely made a little less than $10 million in Q4, probably between $5 million to $10 million. So cumulatively, we have likely invested around $15 million to $20 million over this period. Again, about 70% of the total investment should be expected in the ongoing run rate, while around 30% was likely one-time in nature.

Of course, I'm not going to say you're dead wrong. You're very knowledgeable and you do your homework all the time. What we saw in Q1 was about 20 basis points of price erosion, primarily in China due to VBP. If you look at what happened to China in Q1 of last year, we had very limited business and a lot of growth this year. That has impacted our overall EBITDA leading to a decline in our margin. We saw a bit of price erosion in our Equipment business, but your question pertains primarily to North America and implants. We're not observing that yet. In Q1, we did not experience that. We didn't see it in Q4 either. While we have performance issues we need to address to improve our growth trajectory, price has not been a concern for us here. Specifically on the Nobel side, we maintain a disciplined pricing approach and we see some price erosion, but not mainly due to price, rather because of the full arch and specialized procedure that costs $25,000 to $30,000, which has seen a muted market. I don’t think this is particular to us; we're underperforming but the market has faced challenges as well. In response to your question, we have not seen price erosion in premium implants. I'd be interested to know where you're getting that information. We have a large constituency of specialist referral networks and we constantly monitor the market conditions. We have not witnessed price erosion.

I want to talk about implants a little bit, too, but from a different perspective. When you discuss returning to market growth, what does market growth mean? What do you anticipate the growth rates in that industry to be? I know it’s currently depressed, but when you mention targeting industry growth, what specifically are you aiming for? Additionally, is it simply a matter of better education or do you consider your current portfolio sufficient to achieve that?

That’s a really good question. Let's look back a bit for context. Over a 5- to 7-year period, the premium implant market, which consists of mainly four companies, has seen mid-single-digit to low-single-digit growth, ranging from 3% to 5% in volume. Conversely, the value segment, which includes newcomers to the space, has grown at a volume rate of 7% to 8%, although prices have significantly decreased. So in dollar terms, the premium and the value segments are nearly equivalent. Looking at what transpired over the last 12 months while focusing on implant placements geographically, we understand that in 2023, approximately 4.4 million implants were placed in North America. In the first half of the year, growth was low single-digit around 2% to 3%. In the second half, the placements were nearly flat compared to 2022. We don’t have the Q1 data yet, but we are observing a muted market regarding implant placements. A significant volume is concentrated in multi-unit and full-arch implants, which typically range from $25,000 to $30,000. The lack of these procedures has been impacted by rising interest rates and market uncertainties. Our expectations for growth are that when we say we want to return to market growth, we anticipate closing the gap we've observed over the past 4 to 6 quarters in North America by the end of the year, given our performance in other regions remains at or above the market levels.

That’s super helpful. An incremental question: do you think the trend between value versus premium will continue? Is this purely consumer-driven, or might this trend persist for a longer duration? It felt like there was an inflection point, particularly in the second half of the year. Do you think that can recover?

We entered the value implant market earlier than the premium segment, acquiring Implant Direct in 2010. Our initial hypothesis was that value implants would take a significant market share from the premium segment. However, after five years, we recognized that this was not the case, as both segments are growing. In total, we see substantial opportunities in the market; less than 10% of individuals who could utilize implants today are actually doing so. Over 100 million 3-unit bridges are placed every year, along with over 30 million dentures. These numbers indicate strong potential for increased implant usage. As more patients recognize the value of implants, we believe the market will continue to grow significantly for both premium and value segments. We have not observed any erosion of premium market share due to value implants. Both segments continue to expand, with value implants growing faster, but premium prices are remaining stable.

I wanted to ask a high-level question. Over the past few years, you've successfully removed costs from the business to facilitate margin expansion. Now, it seems we need to add back some costs, particularly in the implant sector. To that end, do you believe this is a necessary step to return to market growth? Was the under-investment from cost-cutting part of the overall issue and what does that imply for margin potential as you begin to reaccelerate the top line?

Brandon, thank you for your question. I think it's essential to view this issue in two segments. We previously discussed how coming out of COVID, we likely handled efficiency levels poorly and may have overcut some of our commercial resources. We are seeing the necessity to add back some of those resources, as you have observed. In terms of our overall cost level, we still see efficient opportunities moving forward, which is why one of our goals is to eliminate an additional $30 million in structural costs. Therefore, in short, we need to make some short-term investments to rejuvenate growth in North American implants, especially, while looking for long-term opportunities to reduce costs and enhance efficiency. We want to concentrate on maintaining efficiency in G&A, while also making critical sales and marketing investments.

In Q1, we saw our sales in China increase by over 50%. As mentioned earlier, Q1 was muted due to COVID restrictions and the VBP aspect. We are closely monitoring the number of implants placed, and we've seen a significant ramp-up throughout China attributed to three factors. Firstly, the price gap between premium and value has significantly shrunk due to the VBP. Secondly, the price of implant placement has now reached parity with 3-unit bridge options, leading more patients to see the advantages of a lifetime solution compared to short-term alternatives. Lastly, clinician capabilities to place implants are increasingly recognized, leading to greater public acceptance of the procedure itself. We're genuinely excited about long-term growth potential in the Chinese market, not only for premium implants but also with our value brand, ABT, gaining acceptance in various significant institutions. This is an underpenetrated market with substantial growth potential. Regarding the timeline, we anticipate the VBP for orthodontics will roll out in the second half of the year. The approach taken for implants has provided valuable insights regarding structured management of that transition. We believe the long-term outlook for Envista in China remains strong due to a high level of under penetration and the solid brand recognition we have established.

Amir, thanks for all your help over the years, and Paul, welcome to you. I wanted to inquire about the consumables business. Outside the U.S., you noted some weaker demand. Could you elaborate on what you observed in the quarter? Were specific geographies that stood out? Furthermore, you mentioned actively managing pricing in some of those markets; could you shed light there? Are you witnessing a decline in demand in dentistry that necessitates adjustments in pricing? Any insights you can provide would be appreciated.

Thank you, Nate. Starting with pricing, our relationships and partnerships with our partners and distributors typically lead to a gradual price change process rather than abrupt shifts. Usually, we provide at least 30 to 90 days' notice prior to any price adjustments. Therefore, it’s a slightly different landscape compared to implants and orthodontics. Our pricing position is stable, as we have strong partnerships with our distributors. As Stephen mentioned, we have invested in key supplier programs. However, in Q4, a cybersecurity challenge caused some delays we experienced in Q1. Our infection prevention segment grew mid-single digits during Q1, dominating due to the medical channel. We observed a pronounced increase not only in sales growth but also in pricing performance. Our restorative endodontics business was relatively flat after experiencing a double-digit decline in Q4. Given how well we managed the inventory with our partners, we believe that the opportunity for a positive rebound remains significant. Regarding the geography side, North America is a strong area for our business, and we have observed consistent momentum. In Europe, we faced challenges with reduced working days in Q1 because Easter fell within this period, resulting in slower demand, but this was not due to poor sell-out performance. Overall, we maintain a bullish outlook for our restorative and endodontics business, believing that we have the right products and strong distributor relationships to create opportunities. We anticipate that the performance we have experienced will continue to outperform the market throughout 2024. We currently have active searches in progress for both the CFO role and Nobel positions. The transition in leadership has caused a slight delay in our processes since a new CFO typically prefers to know who they will work with closely. Nevertheless, we now have a number of strong candidates in mind and the Board has been actively involved. With Paul's appointment, we are hopeful for an acceleration of our search efforts. As for the Nobel role, there is considerable interest from top talent, and I leave it to Paul and the management team to communicate these updates in the future. We are committed to building upon the momentum we have established and to further our legacy in the coming years.

This concludes our Q&A session; I’ll turn the program back to Stephen Keller for any closing comments. Thank you, everyone. I appreciate your time today. We will be setting up additional opportunities for investors to interact with Paul at a later date, once he's had a chance to fully engage with the business. We're looking forward to working with all of you in the coming quarters and years. Thank you very much.

This concludes today's program. Thank you for your participation, and you may now disconnect.