Earnings Call Transcript - NVST Q4 2022

Operator, Operator

Good afternoon. My name is Chelsea and I will be your conference call facilitator. At this time, I would like to welcome everyone to the Envista Holdings Corporation's Fourth Quarter 2022 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Envista Holdings. Mr. Keller, you may begin.

Stephen Keller, Vice President of Investor Relations

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, 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. They will remain archived until our next quarterly call. As announced on January 3, 2022, we closed the divestiture of our Cabo treatment units instruments business for both 2021 and 2022. The results of this business are reflected as discontinued operations in our financial statements as required by generally accepted accounting principles. All references in these remarks and accompanying presentation to earnings, revenues and other company-specific financial metrics relate only to the continuing operations of Envista's business, except for the cash flow measures. 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, references in these remarks to company-specific financial metrics relate to the fourth quarter of 2022 and references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices that have applications submitted and pending certain regulatory approvals or are available only in certain markets. During the call, we will be making 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, 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 where as required by law. With that, I'd like to turn the call over to Amir.

Amir Aghdaei, President and Chief Executive Officer

Thank you, Stephen and good afternoon to everyone. We appreciate you taking the time to join us on today's call. I'm pleased to report that for the full-year 2022, the Envista team delivered another strong performance. Our core sales growth was up 4.1% for the full-year and achieved an adjusted EBITDA margin of 20.1%. This represents a 40 basis point expansion in adjusted EBITDA over 2021. We experienced a slowdown in growth in some portions of our business in the fourth quarter. This was expected and primarily related to challenges associated with the COVID outbreak in China, the geopolitical issues related to the conflict in Ukraine, and a continued depressed environment for capital equipment driven by higher interest rates and lingering economic uncertainty. As we reflect on our performance in 2022, as well as our future outlook, I think it is important to provide some context about the underlying demand for dental solutions. As I have shared on previous calls, my leadership team and I have spent a significant amount of our time in the field meeting dental professionals in their clinics to understand what is happening in real time. It is not an overstatement to say that in 2022, we collectively spent time with over 1,000 clinicians across North America and Europe. What I hear consistently from private practice clinicians, group practices, institutions, as well as dental service organizations is that they are incredibly excited about the long-term prospects of the entire market. They see significant opportunities to grow their business by investing in and expanding their specialty treatment offerings. They recognize the opportunities to enhance their capabilities, optimize their workflows, and digitize their offices. While clinicians are confident in the long-term, they remain mindful of the short-term headwinds driven by increased interest rates, the possibility of recession, general economic uncertainties, and global geopolitical risks. We continue to monitor patient traffic and appointment bookings for specialty procedures. So far, patient demand has been resilient, but we do expect continued volatility going into 2023. While the market remains dynamic, I think it's important to point out that Envista continues to deliver, despite the volatile global supply chains, geopolitical challenges, and persistent inflation. Our culture, underpinned by the Envista Business System, enables us to continuously deliver for our customers and shareholders. We leverage EBS principles daily to fulfill our commitments. We quickly identify potential risks and opportunities and deploy EBS tools, such as daily management or problem-solving processes and value stream mapping to ease supply chain uncertainties, improve our operational capabilities, reengineer existing processes, and continuously drive productivity. Our ability to produce results in the face of uncertain times is a direct reflection of our continuous improvement and customer-centric culture, our strategic differentiation, and the ongoing transformation of our portfolio. Before I turn it over to Howard to discuss our fourth quarter results in more detail, I want to provide more color on the progress we made in 2022 against our long-term priorities of accelerating our growth, expanding our operating margins, and transforming our portfolio. In 2022, we made significant progress in driving commercial execution across our portfolio. Core growth in our orthodontics business was over 15% in 2022 as Spark continues to deliver industry-leading performance. We're pleased to announce that together with our orthodontics partners, we have started over 300,000 Spark cases around the world. In 2022, we nearly doubled the number of active Spark doctors and further improved utilization rates of individual clinicians, leveraging our EBS toolkit to systematically manage our funnel of new clinicians and develop standard work to flawlessly onboard new Spark customers. Spark is widely seen as the leading nuclear aligner system in the market, and our disciplined execution allows us to capitalize on this promise. In addition to Spark, we also saw low single-digit core growth in our traditional brackets and wires business in 2022. This growth was despite relatively weaker performance in China and Russia, which normally delivered outsized growth for our traditional brackets and wires. Our relative outperformance in brackets and wires is driven by our commitment to orthodontics and our ability to bring effective innovation to a mature industry. Our Damon Altima product continues to grow rapidly by providing orthodontists with more precise finishing capabilities, allowing them to reduce share time and improve office efficiency. We have developed standard tools to guide customers through the ultimate journey and support them with targeted and effective education. Outside innovation, we are focused on our commercial execution. With over 40% of our brackets and wires business in emerging markets, it is imperative that we reinforce our position as the partner of choice for new orthodontic professionals in emerging markets. To that end, we are pleased to be the only multinational supplier to be chosen during China's orthodontic volume-based procurement process. This is a testament to the value that our brackets and wire solutions provide in all markets. Long-term, we are confident in our broad orthodontics offerings. Our portfolio is differentiated and uniquely positioned to both benefit from and help drive further expansion of orthodontic treatments globally. Turning to our solutions for implant-based tooth replacements, we delivered solid mid-single-digit core growth in 2022, despite significant volatility in China and Russia, two normally important growth drivers for this business. Led by strong relative performance in Europe, our premium business continues to perform well. We benefited from our focus on providing comprehensive solutions for implant-based tooth replacements, and as a result, we are seeing strong growth in both digital solutions and regenerative materials. The Osteogenics business that we acquired in July of 2022 is off to a strong start. This business is now fully integrated and is starting to benefit from an EBS-driven focus on execution and management. We expect our strong implant franchise to continue to grow at or above the market. Critical to our long-term strategy is our commitment to expand operating margins through disciplined execution and a focus on continuous improvement. As discussed in 2022, we delivered a 40 basis point expansion of adjusted EBITDA margins. We achieved these results while making significant investments in our long-term growth and also facing both meaningful inflation as well as intermittent supply chain disruptions. Each of our businesses are driving improvements in productivity, systematically aligning our prices and driving down operational costs. In addition, we continue to optimize our organizational structure to improve the customer experience while creating more flexibility to deal with uncertainties in the macro environment. During the second half of 2022, we eliminated more than $30 million in structural costs and continued to look for ways to further streamline our organization. 2022 was another important year in the transformation of our business. We further shifted the portfolio to higher growth and more profitable segments of dental where we can create and sustain competitive advantage. In 2022, we benefited from the divestiture of a slower-growing, lower-profitability treatment unit and instrument business. This transition both improved our overall growth and profitability while reducing our exposure to more cyclical segments of the dental market. Given the economic uncertainty, the transformation of our portfolio puts us in a much stronger position as we move forward. In the past year, we closed two strategically important acquisitions that positions us to drive digitization of the dental market while exposing us to higher growth segments within the industry. Our acquisitions delivered more than $40 million in revenue in 2022 and will enable us to accelerate core growth long-term. While we're excited about the strategic moves that we have made today, we see opportunities to further improve our portfolio. We're committed to pursuing an active but disciplined approach to capital deployment. We utilize an EBS-driven M&A approach to manage our robust pipeline of inorganic partnerships and investments and are actively cultivating new opportunities. I will now turn the call over to Howard to go through our fourth quarter financials and provide more details on our segment performance.

Howard Yu, Chief Financial Officer

Thanks, Amir. On a reported basis, fourth quarter sales increased 1.4% to $660.8 million. Sales in the quarter were negatively impacted by 4% due to foreign currency exchange rates, while acquisitions contributed 3.1% of growth in the quarter. Our core sales growth was 2.3% compared to the fourth quarter of 2021. Our year-over-year growth reflects solid mid-single-digit growth in our Specialty Products and Technology segment offset by a slight decline in our Equipment and Consumables segment. Geographically, our developed markets grew 3.5%, driven by very strong growth in Western Europe, offset by more modest growth in North America. Taken together, China and Russia declined significantly in Q4, while other emerging markets grew low-single-digits. Our fourth quarter adjusted gross margin from continuing operations was 56.2%, a decrease of 90 basis points compared to the prior year. The decrease in gross margin was driven by a combination of inflation and strong growth in Spark, somewhat offset by pricing. Our adjusted EBITDA margin for the quarter was 20.9%, which is 240 basis points higher than Q4 of 2021. Expanded margins were primarily driven by the EBS cost and productivity initiatives undertaken by our team throughout 2022. In Q4, we took further actions to streamline our organization to ensure that we can continue to expand margins while investing for growth. Our fourth quarter adjusted EPS was $0.52 from continuing operations, compared to $0.46 in the comparable period of the prior year. This represents a 13% increase year-over-year. Core revenue in our specialty products and technologies increased 4.5% compared to the fourth quarter of 2021. Strong growth in Western Europe was offset by significant declines in China and Russia. Within this segment, our orthodontics business grew more than 15% year-over-year in the fourth quarter with Spark continuing to outperform. Our bracket and wires business grew low-single-digits in North America but was dragged down by double-digit declines in China and a more modest decline in Western Europe. Despite the macro volatility, we are confident that our orthodontics business continues to outperform the market. Clinicians value our comprehensive orthodontics portfolio and our focus on the orthodontics specialist. Our implant-based tooth replacement business declined modestly in Q4 of 2022 versus Q4 of the prior year. This decline was primarily driven by double-digit declines in China and Russia combined. Outside of Russia and China, we delivered positive low single-digit growth led by solid performance in Europe. Our regenerative business, including the newly acquired Osteogenics business, continues to accelerate. For the fourth quarter, our Specialty Products and Technology segment had an adjusted operating profit of 20%. This was down 210 basis points versus the same period in the prior year, primarily due to Spark and our continued investment to drive long-term growth, as well as a decrease in sales in China and some currency headwinds. Turning to our Equipment and Consumables segment, core sales in Q4 decreased by 0.9% compared to Q4 of 2021. The decline in sales was due to the continued slowdown in equipment volumes offset by very strong growth in our consumables business. Our traditional imaging business declined double digits in the quarter with lower volume across most geographies. The lower growth was partially attributable to the strong performance in Q4 of 2021 driven by pent-up demand, as well as macro headwinds, including inflation, rising interest rates, COVID-related challenges in China, and geopolitical uncertainties. Further, we continue to deemphasize non-strategic 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 accelerated in the fourth quarter, and we continued 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 expect this business to be a contributor to our core growth in 2023 and beyond. On the consumables side, our Restorative & Endodontics grew more than 7% in Q4 with strong growth in most markets. Our team continues to execute, and we are well-positioned to continue delivering results at or above market growth. As expected, our infection prevention business increased double digits in Q4 of 2022 compared to the softer Q4 of 2021. The pandemic-related spikes in demand and inventory levels have now normalized, and we believe moving forward this business will grow more in line with long-term market trends. Equipment and Consumables adjusted operating profit margin was 27.2% in the fourth quarter of 2022, versus 21.4% in Q4 of 2021. Our continued strong margin improvement was driven by a favorable sales mix and improved pricing, as well as our relentless focus on driving productivity. As we move into 2023, the inclusion of our more fully integrated iOS business will further support the growth of our equipment and consumables business while also positively contributing to our profitability. In the fourth quarter, we generated free cash flow of $95.1 million and we ended the year with over $600 million in cash. For the year, our free cash flow was markedly lower than the prior year due to several factors, including the elimination of cash flows associated with discontinued operations, one-time transaction costs associated with our acquisitions and divestiture, the timing of tax payments, and higher capital expenditures to support our long-term growth initiatives. As discussed in our last earnings call, we remain committed to our mid-term goal of delivering free cash flow in excess of net income. We made significant progress in the fourth quarter driven primarily by sequential improvements in working capital. As we move into 2023, we remain focused on driving free cash flow while continuing to invest in our long-term growth initiatives. Overall, our balance sheet remains strong, and we have ample liquidity and the flexibility to pursue appropriate long-term investments. I'll now turn the call over to Amir to provide an update on our 2023 outlook as well as some closing comments.

Amir Aghdaei, President and Chief Executive Officer

Thanks, Howard. Looking forward, we remain confident in our strategy and long-term outlook. The dental market is attractive, underpenetrated, and has strong growth trends. Our business is strategically differentiated, and we have a proven track record of execution. We have conviction in our ability to deliver on our long-term financial targets of accelerating growth to high-single digits and expanding our adjusted EBITDA margins to over 22.5% by 2026. While we remain confident in our long-term targets, we are also mindful of the volatile macro environment. Despite the resilience of the dental market, we expect 2023 global demand to be choppy. Mounting expectations for a recession are likely to weigh heavily on the minds of both patients and clinicians. The geopolitical situation related to the Ukraine conflict and the associated risk of an energy crisis in Europe, as well as China's COVID-related uncertainty and consumer sentiment, will create additional volatility. In light of this macroeconomic background for 2023, we expect to deliver low-single-digit core growth and adjusted EBITDA margins of over 20%. We expect 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 the streamlining of our organization and cost reduction, as well as the shift of our portfolio mix toward higher margin products. Our full-year guidance reflects a balanced view of managing through a more volatile macro environment while continuing to invest for long-term growth, expanding our margins, and transforming our portfolio. We're pleased with our 2022 results and remain optimistic about the future of the dental industry. Moving forward, our priorities remain the same. We will accelerate growth, expand our operating margins, and transform our portfolio through active and disciplined capital deployment. Our intention is to be the leader in orthodontics, providing a differentiated and integrated suite of treatment options, including brackets and wires and clear aligners. Our comprehensive offering empowers orthodontists to provide the best treatment modality for each and every patient. We will further accelerate our growth in implant-based tooth replacement by leveraging our premium implant franchise to provide full solutions across the implant workflow, including regenerative and prosthetics offerings by utilizing our premier diagnostics and digital capabilities. We will continue to grow and broaden access to a highly profitable and differentiated consumable business. Finally, we will leverage our strength in imaging and diagnostics to build digitally integrated workflows from diagnostics to treatment planning to execution for our clinical partners. Given the near-term macro uncertainty, we will lean heavily on our EBS culture to both improve execution, drive efficiency, and reduce costs. We see significant opportunities to invest organically and inorganically in the dental market. We have the financial flexibility and management focus to further accelerate our growth trajectory via disciplined capital deployment and inorganic investments. The progress we made this quarter and in 2022 is a direct reflection of our culture centered on continuous improvement and commitment to our customers and the dental industry. Our purpose is to partner with dental professionals to improve patients' lives by digitizing, personalizing, and democratizing dental care. We're excited about our continued growth journey in 2023 and beyond.

Stephen Keller, Vice President of Investor Relations

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

Operator, Operator

Thank you. And we'll take our first question from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar, Analyst

Hey, good afternoon, Amir and Howard. Apologies in advance for any background noise here. Maybe just to start, Amir, it's a pretty dynamic environment right now as you alluded to in your opening remarks, but the dental consumer in the U.S. and I mean most of Europe seems to be healthy today. I think a lot of us were fearing that others in dental might have talked more positively about demand visibility improving. Implants outside of China and Russia seem to be in an okay spot based on your comments here today. I know it might not be perfect visibility, but you're really close to the end market as you alluded to. I really just like to start with getting your impression if you could expand further on your prepared remarks on the health of the dental consumer in the U.S. and Europe and their willingness to spend on discretionary dental procedures?

Howard Yu, Chief Financial Officer

Thanks, Jason. What we have seen is that patient demand remains resilient. Through all the reviews that we have done and visits that we've made, patient bookings remain consistent, and in specialty businesses, there is continuity around patient traffic. The challenges and the macro perspective continue to show softness in China that began in Q4 and we have seen that persist into Q1, with volatility also remaining in Russia. Large imaging equipment is also under tremendous pressure from investment by large DSO's opening new offices, as well as interest rate and inflation-related challenges. We expect Q1 growth to be muted, but as we progress through the year, we anticipate faster growth throughout 2023. In the long run, we believe that this industry has tremendous runway. Our capabilities to manage through these volatilities have improved and strengthened as we reach a more stable situation.

Jason Bednar, Analyst

All right. Thanks for that. Maybe then on – if I pivot over to the part of the guidance here, I thought the EBITDA margin guidance here was pretty solid considering you had the profit headwinds from VBP. Howard, would you be able to help us think through the magnitude of those VBP headwinds you're absorbing? What EBITDA margin might have been without those pressures? And then also along that margin vein, can you speak to where we're at with Spark in terms of its impact on the EBITDA margin profile in 2023, whether you think about that in absolute terms or in terms of incremental margin? Sorry for throwing a few in there together, but thanks again for taking the questions.

Howard Yu, Chief Financial Officer

No problem, Jason. So, as it relates to VBP, let me go ahead and provide a little bit of quick framework here. For us, our China business on the specialty side is about $175 million, with over $100 million in the implant side and over $75 million on the ortho side. Remember that most of our business focuses on the private sector, which is about 70% of our collective business there. This is a faster growing segment, and we see more opportunities to differentiate through innovation. VBP is primarily impacting the public sector. The goal of VBP, as we know, is to reduce treatment costs and therefore expand access overall. DSOs will certainly be involved in it as well. At this point, we expect a little bit of spillover into the private sector. As it relates to the outcome of VBP and where we sit today, implants—it's a national program, the bidding is complete, and it's currently being rolled out. Envista, our brands, have won in both categories, and we expect that it's going to be reasonably favorable for us in terms of being a selected vendor. However, we recognize that pricing on that side will probably experience about a 50% drop. On the ortho side, it's much smaller so far; VBP has only impacted about 15 provinces, which is less than 10% of the collective market there. As Amir mentioned in his comments, we are the only multinational selected to win on the bracket and wires side, but we think the pricing will have a headwind of about 35%. In both these cases, we're reasonably pleased with the outcome of being selected. Your next question regarding margins: Spark is currently in investment mode. Clearly, we’re encouraged by our growth in that business, and we’ll continue to invest there. In 2023, we expect to remain in investment mode. Clearly, that business is dilutive to our margins today, but longer term we believe that we can get the margins up above the fleet average. The positive aspect is that we are seeing quarter-over-quarter sequential productivity improvements and the automation investments are paying off. We’ll continue to enhance that improvement as we progress.

Jason Bednar, Analyst

Okay. Thanks. Maybe just real quick—any sizing on expected deep margin impact from VBP?

Howard Yu, Chief Financial Officer

If you do the math on that, I'm going to say it's roughly around 70 basis points, maybe a little more than that, could be. So, if you take it somewhere around $20 million plus.

Jason Bednar, Analyst

All right. Thanks so much. Very helpful.

Elizabeth Anderson, Analyst

Hi, guys. Thanks so much for the question. I guess my first question is just sort of maybe if you could talk a little bit more about the underlying trends that you're seeing in the first quarter so far? I know that you just obviously talked about China, but maybe focusing more on North America and Europe.

Amir Aghdaei, President and Chief Executive Officer

Yes. Happy to do it. Thank you, Elizabeth. We have to discuss a little bit segment-by-segment. In orthodontics, we have seen the continuation of expansion of our Spark business remain consistent. Quarter-to-quarter, comparing Q4 versus Q3, we had about a 25% step-up. We’re not seeing anything that changes our view so far on that continuation. Bracket and wires in North America and Europe continue to perform, but in emerging markets, specifically China and Russia, we haven't seen any major trends or changes in trajectory as we saw in Q4. For context, China had a double-digit decline for us in Q4, and Russia was very volatile quarter-to-quarter, and that hasn't changed as we've walked through January. In the implant side, outside those two geographies, we have performed well and continue to execute operationally, with improved commercial execution. We made improvements in our go-to-market activities several years ago, and the outcome has been continuous progress, translating into stability moving forward. In consumables, we experienced high-single-digit growth in Q4 and really outperformed the market. Our team continues to execute effectively and we now have much better visibility regarding our sales. In the last part of our business, we haven’t seen any change in the imaging side of our business as we walk into Q1. Notably, about one-third of that business is services, and it continues to provide a stable foundation for growth. So, putting all of that together, we expect a slower ramp throughout the year, specifically at the front part. However, as certainty returns, particularly regarding China, we expect to see higher growth and improved margins as we move forward during the year.

Elizabeth Anderson, Analyst

That's very helpful. Thank you. I guess as a follow-up, I would also be curious about your comments and maybe this is more for Howard about the sensitivity of the operating margin guidance that you just gave us to the sort of macro growth. Obviously, with the low-single-digit core guide, how do you see that potential flexibility there?

Howard Yu, Chief Financial Officer

Yes. So, Elizabeth, we are always looking for continuous improvement. Even when we have a softer top line, we'll continue to enable our EBS process and look to improve efficiencies and productivity as well. As Amir indicated in the prepared comments, we undertook substantial actions even on the structural side in the second half of the year, and we continue to fine-tune that in Q4 as well. You can expect us to do what we need to operationally, ensuring that we maintain our long-term growth drivers. We will continue investing in areas where we have innovation that can drive future growth.

Elizabeth Anderson, Analyst

Got it. Thanks so much, guys.

Jeff Johnson, Analyst

Thank you. Good evening, guys. Two things stood out to me in the quarter, and I want to ask on both of them. One, your Western European growth is strong again. This is the second quarter in a row that I think your three-year compound annual growth rate is now up into the upper single, if not low-double digits. I think that over the last couple of quarters, that acceleration sounds like it's timed pretty well with some DSO wins you've had with Spark over in Europe. So, can you explain what you're seeing in the underlying market, I guess, excluding Spark in Western Europe? Is consumer demand there for dental services still solid, or is it more outperformance on your part? And two, how should we think about that European growth once you anniversary through a couple of those DSO wins in the back half of this year? Does it come back down? Does it normalize the end market growth, or can you sustain that elevated growth?

Howard Yu, Chief Financial Officer

Thanks, Jeff. The simple answer is a lot of it has to do with execution. The growth in Western Europe is a result of our systematic approach to expanding our presence in the region. We’ve been training a small number of orthodontists to ramp their capability and then moving to the next level, and we’re starting to see significant momentum geography by geography. While the DSOs factor in this equation, we believe its broader performance across all our businesses in the region that contributes to this ongoing success.

Jeff Johnson, Analyst

All right. That's very helpful. Thank you, Amir. The other number that really stood out to me is that Endo/Resto number up 7%. From what I gather, the market isn't growing nearly that fast. So, what portion of that is share gains for you versus pricing? As it appears that your pricing efforts really picked up in the second half of 2022. As you anniversary some of those mid-2022 price increases, how are you thinking about price increases in 2023? Can you support the same level of price increase again in 2023, or how should we think about that?

Howard Yu, Chief Financial Officer

Let me just provide some background perspective. We've completely revamped our inventory management, enabling us to be more insightful about what is taking place on the ground. This includes changes in the compensation of our team and marketing programs around education and training. In the past six months, we've introduced significant innovations and the momentum around consumables is strong. We believe that consumable business has the potential to be a major factor in our growth and margin profile. We think our price increases are targeted around this innovation rather than broad measures across the board. In 2023, we anticipate seeing mid-single-digit to high-single-digit growth in our consumable category as this positive trend continues.

Jon Block, Analyst

Thanks, guys. Good afternoon. Howard, maybe I'll just start with a rough bridge on some of the moving parts. For Spark, we're talking about a 300 basis point contribution to revenue growth in 2022. Is that a good assumption for 2023, around 250 bps to 300 bps to revenue growth? Can you talk about the contribution from price this year, Amir, considering what you mentioned earlier? And what are the offsets, right—VBP, imaging—what might they look like?

Howard Yu, Chief Financial Officer

Yes. As it relates to Spark, we initially anticipated its contribution to revenue growth would exceed 200 basis points in 2022, and we performed ahead of that. For 2023, we believe it will provide over 250 basis points of growth. However, keep in mind that Spark currently dilutes our fleet average when it comes to margins, which we expect to improve. Pricing also played a role, accounting for more than 150 basis points of growth last year, mostly from the equipment and consumables business. We expect positives in pricing, but presuming no impact from VBP, would lead to about a $20 million impact overall, which is about 70 basis points top-line and margin impact.

Jon Block, Analyst

Got it, got it. Very helpful. And then just the second question—when you say greater than 20% adjusted EBITDA margin for 2023, is that flat, modestly up, or up less than 50 bps to 75 bps that you usually target on an annual basis? What about the accelerating revenue growth; is that still in the green to start the year?

Howard Yu, Chief Financial Officer

Jon, as you know, since going public, we’ve delivered over 450 basis points, significantly over our commitment of 50 to 75 basis points. We're maintaining our guidance of at least 20% EBITDA margin for this year, and we expect our growth to build throughout the year. Q1 will be challenging, particularly due to factors in China and Russia. However, we believe Q4 will be strong and we don’t expect it to disrupt our usual seasonal performance.

Nathan Rich, Analyst

Hi, good afternoon. Thanks for the questions. Maybe just building on Jon's question. Amir, how's your thinking around long-term targets evolving? Is there a change in your expectations for accelerated growth and margin improvement due to recent market uncertainty? Additionally, what do you expect will drive improvement throughout 2023? I assume China is a major factor, but some pressure from equipment and VBP will take longer to annualize.

Amir Aghdaei, President and Chief Executive Officer

Thanks, Nathan. We put those targets back in Q1 of 2021 and have considered the challenges we’d see along the way. The competitive landscape for aligners may change over time, but we remain optimistic about achieving high-single-digit growth and expanding EBITDA margins to over 22.5% by 2026. We factor in VBP and other uncertainties but believe our mid-single-digit growth above 20% EBITDA margin target is achievable. Continuous improvement and cost reduction are in our DNA, and we have numerous opportunities to strengthen our relationships with our customers through improved execution.

Stephen Keller, Vice President of Investor Relations

I think with that, we appreciate your interest in Envista and we look forward to connecting with you at future events. Thank you.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude Envista Holdings Corporation's fourth quarter 2022 earnings results conference call. We appreciate your participation.