Earnings Call Transcript - NVST Q1 2022

Operator, Operator

My name is Chelsea, and I will be your conference call facilitator this afternoon. I would like to welcome everyone to Envista Holdings Corporation's First Quarter 2022 Earnings Results Conference Call. I will now turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Envista Holdings. Mr. Keller, you may begin your conference call.

Stephen Keller, Vice President of Investor Relations

Good afternoon, and thanks for joining us on the call. With us today are Amir Aghdaei, our President and Chief Executive Officer; and Howard Yu, our Chief Financial Officer. I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliation 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 that will remain archived until our next quarterly call. As announced on January 3, 2022, we have closed the divestiture of the Cago treatment unit and instrument business for the first quarter of 2022 and the full year of 2021; 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 operation of Envista's business, except for 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 first quarter of 2022 and the 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 and are available only in certain markets. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe, 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 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 welcome, everyone, to Envista's Q1 2022 earnings call. Despite a challenging macro environment, localized COVID lockdowns, numerous supply chain disruptions, meaningful inflation, and a challenging geopolitical environment, I'm pleased to report that Envista was able to deliver a strong first quarter, marked by mid-single-digit core growth and better-than-expected adjusted EBITDA margins. Our performance in the quarter is a testament to the team's passion, dedication, and focus on execution. I'm proud of our team's efforts and believe that we are strategically differentiated and have a proven track record of execution. By partnering with professionals to improve patients' lives, we are well positioned to continue to outperform the market. Before I turn it to Howard to discuss our first quarter results in more detail, I want to provide more color on our progress toward our long-term priorities of accelerating growth, expanding our operating margins, and transforming our portfolio. At Envista, we see a significant opportunity to improve patients' quality of life by digitizing, personalizing, and democratizing oral care. On March 31, we hosted our inaugural Envista Summit, which brought together the legacy Oncoform and Nobel Biocare symposium with a brand-new technology track to demonstrate our clinical workflow capabilities that improve the productivity and predictability of clinical procedures. With over 1,700 attendees, both in person and virtually, this event allowed us to articulate a vision for the future of dentistry while highlighting the combined strength and scale of the Envista portfolio. We provided high-impact training in orthodontics, implantology, and digital workflows and introduced clinicians to the latest advancements in dental care that we believe will transform dentistry over the coming decades. At the summit, we also hosted our first Investor Day as a public company, where we outlined our long-term plans for accelerating growth to high single digits while continuing to drive margin expansion. We shared our vision and how we will create value for patients, customers, employees, and shareholders and further demonstrated how Envista is strategically differentiated and has a proven track record of execution. Our Q1 performance was another step in delivering on our long-term commitments. In Q1, we saw continued strength in our orthodontic business, with solid mid-single-digit core growth in brackets and wires and over 100% core growth in Spark clear aligners versus Q1 2021. Our focus on providing orthodontic professionals with a portfolio of treatment options differentiates us and supports our long-term growth objectives. We are ramping up investments in Spark and are also focused on driving innovation in our core brackets and wires business. Sales of Damon Altima continue to accelerate, and orthodontists appreciate the faster and more precise finishing it offers during treatment. Our implant-based replacement solution grew high single digits despite the temporary lockdowns in major Chinese cities that significantly impacted the last week of the quarter. Our growth was driven by continued strength in our core premium implant business in Europe and North America as well as accelerating growth in regeneratives and prosthetics. In the first quarter of 2022, we trained our first cohort of N1 ambassadors in North America. We are excited about the long-term prospects of N1's biologically driven treatment protocol, which we believe will shorten time to treatment for patients while improving the surgical and healing experience. In our Equipment and Consumer segment, we saw accelerated performance in our restorative business and continued strength in imaging and diagnostics. In March, we obtained FDA clearance for the intelligent mandibular nerve tracing feature in our DTX Studio clinic platform. We continue to invest in DTX to add assisted Inogen or AI functionality that helps reduce the time clinicians spend on time-consuming tasks while simultaneously helping prevent complications and enabling increased focus on patients. Our development partnership with Pacific Dental Services announced in Q1 2022 was created to harness the power of AI in support of clinical image analysis across the dental market. Independently, both Envista and PDS have been investing in industry-leading work on AI support of clinical imaging. Together, we are deploying Envista's DTX Studio clinic software platform throughout all PDS-supported practices to bring the benefits of AI-supported image sorting and interpretations to PDS-supported clinicians. PDS aims to harness the power of data and machine learning to transform the ease with which dentists use clinical imagery to diagnose, plan, and enhance patient care. In addition to driving growth and investing in our strategic initiatives, we remain intensely focused on expanding our margins. In Q1 2022, we achieved an adjusted EBITDA margin of 19.7%. This represents a 120 basis point sequential margin improvement versus Q4 2021. The Envista Business System (EBS) and its focus on continuous improvement drive our execution. It helps us to offset and mitigate the impacts of inflation and supply chain challenges while supporting our ability to invest for growth. In the quarter, we employed EBS and our daily management tools to mitigate many of the significant supply chain disruptions, delay, and reduce the impact of inflation and deploy appropriate pricing actions. While we are proud of the work we have done to date, it is important to note that inflation, supply chain issues, and geopolitical challenges are persistent, and we expect to face continued headwinds in Q2 and the second half of the year. We are focused on transforming our portfolio to higher growth and higher-margin businesses within dental. On April 20, we closed the acquisition of the Carestream Dental intraoral scanner (IOS) business. This acquisition is an important step in our journey of digitizing, personalizing, and democratizing dental care. IOS scans are a critical first step to many high-value specialty dental procedures, including implant surgical guides, prosthetics, and clear aligner treatments. The newly branded line of Texas IOS scanners is an attractive entry point into this segment. This business comes with a proven suite of scanning solutions that include both a proficient hardware platform and powerful software capabilities. It is a substantial global business with significant growth upside over the long run. We're confident that we can accelerate growth by increasing customer reach and expanding into underpenetrated geographies and customer segments. As we have discussed before, this business comes with a strong R&D team and a promising development pipeline that will further accelerate dental digitization for years to come. Now that we have welcomed the new IOS team to Envista, we're focused on driving growth and accelerating performance. We will be making significant investments to further integrate this business into Envista while leveraging EBS to improve its operational capabilities and set it up for long-term double-digit growth. While we are excited about the strategic moves that we have made to date, we continue to see opportunities to further improve our portfolio. We're committed to pursuing an aggressive but disciplined approach to capital deployment. We have a strong balance sheet and have both the financial capability and organizational bandwidth to make additional acquisitions. We continue to utilize our EBS-driven M&A approach to manage 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.

Howard Yu, Chief Financial Officer

Thank you, Amir. Before we begin, I'd like to remind you that our first quarter results are compared against the prior year based on continuing operations, reflecting the sale of our combination treatment unit and instruments business. First quarter sales across all our businesses increased 3.1% to $631.4 million. Reported sales were negatively impacted by 2.3% due to foreign currency exchange rates. Our core sales growth was 5.4% compared to the first quarter of 2021. Our year-over-year growth reflects solid performance across most of our portfolio, which was partially offset by temporary weakness in our infection prevention business as well as the COVID-related lockdown that occurred in Shanghai during the last week of the quarter. The catalyst for growth in Q1 was our Specialty Products & Technologies segment, which was up more than 11% versus Q1 of 2021. On a consolidated basis, Western Europe grew 17.6%, while North America increased 2.4%, dragged down by greater exposure to infection prevention. Overall, emerging markets outside of China continue to expand from pandemic lows, growing 15.6%. China was down 14.3% versus the prior year, driven by the zero-COVID policy that led to localized lockdowns in Shanghai and other regions across China. Our primary warehouse in China has been affected by the lockdown in Shanghai, and this has impacted our ability to ship products locally. We have been able to continue to serve our clinicians and patients outside of Shanghai by leveraging our distribution partners across China to provide product and maintain share in terms of sell-out. Our first quarter adjusted gross margins from continuing operations was 59.2%, increasing by 20 basis points compared to the prior year due to higher volumes, favorable geographic mix, and productivity initiatives across our portfolio. The adjusted Q1 2022 EBITDA margin was 19.7%, which is approximately 185 basis points lower than Q1 of 2021. As previously discussed, in Q1 2022, we continued to invest in our long-term innovation while increasing spend on travel and in-person customer-facing activities. Our adjusted EBITDA was also negatively impacted by approximately $2 million to $3 million in stranded costs related to the sale of the Cago treatment unit and instruments business. We began addressing the estimated greater than $10 million of annualized stranded costs in Q1. Our first quarter adjusted EPS was $0.47 from continuing operations compared to $0.49 in the comparable period of the prior year. In our Specialty Products & Technologies segment, our core revenue increased by 11.2% compared to the first quarter of 2021, driven by strong growth in implants and continued strong growth from Spark. In the first quarter, our orthodontic business grew 18.7%, with our core bracket and wires business growing mid-single digits and Spark continuing to accelerate. We remain very confident in our Spark business and believe that we have a tremendous opportunity to drive long-term growth. Therefore, we continue to accelerate investment to capitalize on this important opportunity. Our implant Phase II replacement business grew high single digits in Q1 of 2022 versus Q1 of 2021, driven by strong growth in developed markets and most emerging markets, partially offset by the impact of the localized lockdown in China. In addition to strong growth in core implants, our prosthetics and regenerative business continues to accelerate. Our Specialty Products & Technologies segment adjusted operating profit finished at 22.2% in the first quarter. This is down 420 basis points from Q1 of 2021 and primarily due to the significant increase in investments to drive long-term growth as well as the increase in customer-facing activities we participated in during the quarter. Sequentially, we drove 10 basis points of margin improvement versus Q4 of 2021 in this segment. Our first quarter equipment and consumables segment core sales from continuing operations decreased by 3.3% compared to Q1 of 2021. Strong demand and solid execution in our curve restorative business drove results higher in this segment, with core growth of greater than 10% compared to the first quarter of 2021. Our Imaging business also performed well in Q1, delivering mid-single-digit core growth versus 2021. This was led by strong performance in our developed markets. As expected, sales of our infection prevention solutions continued to decline from peak pandemic demand. Despite the lower Q1 sales, inventory sell-out trends reported by our distribution partners indicate that we're gaining market share in our core dental market. We further believe that sell-in and sell-out are more balanced, and that this business should return to growth in the second half of 2022. Long term, we continue to expect this business to grow mid-single digits. Equipment & Consumables adjusted operating profit margin was 20.7% from continuing operations in the first quarter of 2022 versus 21.4% in Q1 of 2021. Solid margin improvement in imaging and restorative solutions was offset by the slowdown in infection prevention. Further, we experienced some inflation related to the chemical commodities that impacted our infection prevention business. The segment was also burdened with approximately $2 million to $3 million of stranded costs in the quarter related to the sale of the Cago treatment and instrument business. With this sale of the Cago treatment and instruments business and the addition of the newly acquired IOS business, we are confident that our equipment and consumables business will grow faster and be more profitable as we move forward. In the first quarter, we consumed $16.3 million of free cash flow and ended the quarter with more than $1 billion in cash, enabling us to close the Carestream Dental IOS acquisition with cash on hand. Historically, Q1 is our weakest quarter for free cash generation owing to the seasonality of supplier payments and impact of the annual incentive fund. Our working capital increased sequentially as we continue to proactively manage our suppliers to ensure supply stability while mitigating inflation. Our overall balance sheet is very strong, and we have ample liquidity even after closing the acquisition of the IOS business on April 20. We have the flexibility to pursue additional inorganic growth opportunities when the right assets become available. Now I'll turn the call over to Amir to discuss our outlook for the balance of the year and provide closing comments.

Amir Aghdaei, President and Chief Executive Officer

Thanks, Howard. We remain mindful of the challenges in the macro environment, driven by low rise, COVID lockdowns, geopolitical risks, and inflation, along with continued supply chain disruptions. We're also encouraged by the strong start to 2022 and more optimistic about the long-term outlook for the dental market and our evolving business. As it relates to our IOS acquisition for 2022, we are expecting the newly branded Texas IOS business to deliver sales of between $35 million to $45 million over the balance of the year. We expect sales to accelerate significantly throughout the year, with Q2 being relatively lower as we account for this business for just two months in the quarter as well as on short-term pressure related to the China lockdowns impacting operations in Shanghai. It's important to note that we are planning to invest over $10 million in one-time costs to support both the integration of this business into Envista and to position Texas for rapid growth in 2023 and beyond. About half of this investment will come in Q2. For the rest of our business, there is no change to our previous guidance of core growth between 6% to 8% for 2022. We remain committed to achieving an adjusted EBITDA margin of over 20% for the full year. We're monitoring the ongoing lockdowns in China and while we don't believe these challenges will have a material impact on the full year outlook, they could impact the quarterly results. Our current view is that the core growth in Q2 will be in the mid-single digits, and we will accelerate growth in the second half of the year. We expect Q2 adjusted EBITDA margins to be in the high teens as we make the one-time investments in the IOS acquisition and further navigate through inflation and the impact of the spot buys in our equipment and consumable businesses as we stabilize our supply chain. Moving forward, our priorities remain the same. We will accelerate growth, expand our operating margins, and continue to further transform our portfolio through an 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 individualized treatment plan for each patient. We will further accelerate our growth in the implant-based workflow by leveraging our diagnostics and digital capabilities to provide complete solutions across the implant workflow, including regenerative and prosthetic solutions. We will continue to grow and broaden access to our highly profitable and differentiated consumables 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. We will continue to draw upon our EBS heritage to both improve our execution and drive margin expansion. Finally, we see significant opportunities to invest organically and inorganically, and we have the financial flexibility and management focus to further accelerate our growth trajectory with disciplined capital deployment and inorganic investments. As we continue our journey to digitize, personalize, and democratize dental care, we are excited about the future of dentistry. We're strategically differentiated and have a proven track record of execution. We continue to see significant opportunity to accelerate our growth, improve our margins, and create long-term value for patients, our customers, our employees, and our shareholders.

Howard Yu, Chief Financial Officer

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

Operator, Operator

Our first question will come from Jeff Johnson with Baird.

Jeffrey Johnson, Analyst

Amir, I have two questions for you. First, regarding pricing, I know there was another price increase on May 1. Could you explain how extensive that increase is across your product lines? Also, can we consider that price increase as a way to mitigate some of the pressures from China and possibly some of the macro uncertainty in other regions? Is that the right perspective to have?

Howard Yu, Chief Financial Officer

Jeff, this is Howard. Maybe I'll take that one on pricing. We are actively managing price. I think even in late 2021 and into the first quarter here this year, we took selective price increases, reduced discounts, and instituted freight surcharges as appropriate. While we're not instituting across-the-board price increases, each operating company is closely monitoring inflation, market dynamics, and taking the necessary price actions as appropriate. Certainly, this will provide a tailwind for growth, and it will help counterbalance some of the inflationary impacts that we're facing.

Amir Aghdaei, President and Chief Executive Officer

From a macro environment standpoint, Jeff, what we are seeing here in China, we believe that the situation is going to resolve itself throughout Q2. It is a significant market with a tremendous amount of opportunities. We are committed to it, and we will work through some of the interim challenges until we are able to provide the support and capabilities needed in that country. We have been able to manage our way through the Russia issues, while we remain committed to helping our partners and professionals provide better quality of life to the patients, and we have been able to deliver products into Russia and continue to be bullish about our ability to manage some of the challenges that we see in this environment. This is where EBS comes into play, allowing us to really focus on daily management and improve our operational capabilities. We think that we have demonstrated the ability to manage through some of these challenges. In the short term, we're facing some challenges, but our commitment to delivering on the guidance we have provided remains, and we are confident in our ability to tackle the challenges that are coming our way.

Jeffrey Johnson, Analyst

That's helpful. And then just a quick follow-up on Spark. Obviously, doubling year-over-year is a good number. I think we're all trying to figure out the titration between some pressures your largest competitor and clear aligners felt this quarter versus you guys more than doubling that Spark revenue. But if I look at that, and we try to have a detailed model on Spark, it looks like to me maybe sequentially from Q4 to Q1, Spark revenue was still down a little bit, which would be normal for seasonality and totally get that. But just want to confirm that because that would kind of show, I think, that you and others in the space are kind of just seeing normal seasonal patterns right now and kind of similar trends to a certain extent.

Amir Aghdaei, President and Chief Executive Officer

Just in Q1, we saw a strong sequential growth of 17.3% from Q1 versus Q4 of last year. So we had strong sequential growth. We saw an increase in the number of active doctors, and we observed more utilization from our active doctors. Growth is widespread across various geographies, with Western Europe showing notable strength. We're continuing to add Spark to different geographies through our registration process, and we're seeing doctor adoption continue in various regions, including North America, Europe, and China, along with an expansion into dental service organizations (DSOs). This double-digit growth in the number of doctors using Spark is significant. These are some of the factors we've noticed, and we remain committed to our previous assertions that we plan to triple the size of this business over the next three years.

Jeffrey Johnson, Analyst

I will sharpen my pencil on that model. Thanks, Amir.

Operator, Operator

Our next question will come from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson, Analyst

I had a question about the China number. One, it seems like from my recollection, China is about 10% of your total revenue or maybe about half of your emerging market revenue. Does that imply that these results came through trying to be down to about 15% year-over-year? Does that seem about roughly the right ballpark?

Amir Aghdaei, President and Chief Executive Officer

Yes. So referring to the emerging markets, Elizabeth, outside of China, the emerging markets in Q1 were up almost 15%. Our overall emerging market business accounts for about 23% to 24%, and China is about 10% of that. We have seen strong growth in other geographies, and as Howard mentioned earlier, China was indeed down approximately 14% to 15% in Q1, while the rest of the business performed extremely well. We believe our commitment to emerging markets will continue to yield positive results for us in the long run. As China opens up, we anticipate catching up and compensating for some of the challenges stemming from lockdowns.

Elizabeth Anderson, Analyst

Got it. That's super helpful. And then I also just want to make sure I understand the different macro drivers. Did I also hear you say that you think the Russia revenue should sort of come back in 2Q and thus not be a headwind as we think about the go-forward revenue?

Amir Aghdaei, President and Chief Executive Officer

In Q1, we performed better than our original plan in Russia and Ukraine. We mentioned that this business accounts for about $100 million. While the conflict continues, our expectation is that for the rest of the year, we will see flat revenues, maybe slightly lower than what we saw last year. However, if you look back about 4 to 6 weeks, we had a more optimistic outlook prior to the current circumstances. As I mentioned earlier, we are now capable of delivering some products into Russia, enabling us to continue providing hope to our patients and the doctors and maintain the quality our Russian customers expect.

Operator, Operator

Our next question will come from Erin Wright with Morgan Stanley.

Erin Wright, Analyst

Can you speak to what the initial focus is in terms of the integration of Carestream here? You mentioned, obviously, some of the near-term investment on that front. But what are some of the near-term opportunities to capture greater market share with that offering? And then also maybe some of the longer-term opportunities that would require some incremental investment as well.

Amir Aghdaei, President and Chief Executive Officer

Of course. So I'd like to break it down into three key areas of what that integration looks like. Before I do that, this represents a market value of over $1 billion, growing at double digits. The acquired business possesses established R&D and technology, along with an EBITDA margin of over 30%. Overall, the IOS market is less than 15% penetrated worldwide. Coming back to the integration, the first area is around go-to-market and commercial activities. We have over 3,000 people in our commercial organization, and over 60% of our business is direct. We have access to large areas of underpenetrated geographies that Carestream was unable to reach, and we have great relationships with the DSOs. This gives us an opportunity to ramp up the reach and access of this business in various segments. The second aspect involves operations. We're known for our lean approach, which improves on-time delivery, quality, and margins. I believe we can add substantial effort here as soon as we gain access to that manufacturing. We can improve quality, delivery, margins, and the product's reliability, and we have a long-term plan for this process. The last point is around innovation. This team comes with exceptional R&D capabilities and a solid hardware suite. We can integrate this into our clear aligner business and implant placement capabilities. Now we have a comprehensive digital workflow solution to streamline high-value dental procedures. Go-to-market activities, operational improvements, and R&D will be crucial as we drive growth over time. We believe the business will require some investment on our part but will lead to an estimated 50 basis points of growth and over 40 basis points added to our margin as we ramp up.

Erin Wright, Analyst

Okay. That's really helpful. And just one other smaller item was on supply chain challenges just across equipment. It seems like you have better visibility there at this point. Do you think you have enough buffers in there just given the variables from a macro supply chain and political perspective? At this point, it just seems you have better visibility there? Is that the right way to think about it?

Howard Yu, Chief Financial Officer

Erin, this is Howard. I think that we're cautious about the supply chain. We know that things are dynamic in the marketplace. We have deployed our EBS tools. One of the things we've done is increase our inventory supply to ensure we have consistent lead times. The reality is there are some challenges around petroleum-based products as well as semiconductor chips. We are monitoring that situation very carefully, but the team has done an exceptional job thus far in meeting customer demand. So, that's what we anticipate moving forward.

Operator, Operator

Our next question will come from Nathan Rich with Goldman Sachs.

Nathan Rich, Analyst

Amir, I wanted to start maybe high level. You've obviously acknowledged some of the macro pressures facing the consumer, but it sounds like you expect demand for procedures to remain pretty strong. Could you maybe just help us think about or talk about what played out in March and April as some of these macro headwinds became more acute? And why you believe the business will remain resilient in light of the uncertainty out there?

Amir Aghdaei, President and Chief Executive Officer

Yes. Thank you, Nate. We believe there is a fundamental shift in the long-term view of the dental industry. We don't think this is what we've seen during earlier stages of 2020 when the industry demonstrated resilience and recovered quickly. There is a fundamental change in how people invest in dental care to enhance their quality of life. In the long run, we believe that this industry presents tremendous growth potential. Reflecting on what we saw in December and January, especially in North America and Europe, we witnessed a significant decline in patient volume due to various factors. Cancellations and postponements occasionally reached up to about 30% in some areas but began to ramp up in February and continued through March. April has been interesting, with holiday impacts and the ongoing situation in China. Overall, outside of China, we see a continuation of what began in February and are optimistic about the market's resilience. We feel comfortable with the guidance we've provided, and we believe we can effectively manage through the choppiness in the short term to execute our plans moving forward. Additionally, our ability to execute has improved significantly, as evidenced by how we manage our priorities and build robust capabilities.

Nathan Rich, Analyst

That's helpful. And then maybe just a quick follow-up on China. One of the other focuses in the market right now is just the volume-based procurement that the government is initiating on the implant side. Could you maybe just update us on your expectations around that? And maybe remind us how big your implant business is in China as well as the timing for when we might see any impacts?

Amir Aghdaei, President and Chief Executive Officer

Yes, of course. We've mentioned that our business in China is over $200 million to $250 million, with about 10% of our overall business attributed to that market. A significant portion of our revenue derives from implants. This business has been growing consistently. The volume-based procurement for dental implants will likely be implemented initially in selected provinces in 2022, with a probable national rollout in 2023. It's crucial to note that the Chinese dental market is primarily self-pay, so volume-based procurement will not directly impact the private sector. We believe the shift towards private and premium segments alongside rising disposable income in the middle class allows us to mitigate the impact of this initiative. While volume-based procurement may affect us, we anticipate it won't have a substantial effect, and we remain confident in our long-term growth expectations in China.

Operator, Operator

Our next question will come from Michael Cherny with Bank of America.

Michael Cherny, Analyst

If I could jump back to North America. I know you called out the infection prevention business as part of the headwind for the quarter. Can you give us a sense of what North America grew ex-infection prevention or what the headwind entailed, especially given some of the choppiness that we've seen from some companies specifically within the U.S. and North American markets?

Amir Aghdaei, President and Chief Executive Officer

Excluding infection prevention, we have seen continuous growth in our core business. Our implant business has experienced six consecutive quarters of positive performance, with every quarter performing better than the previous one. Our premium implant segment continues to perform high single-digit growth. In addition, our Spark business and core products are performing well, with bracket and wires business experiencing mid-single digits and double digits growth in Spark. Our imaging segment continues to deliver mid-single-digit growth, and outside of infection prevention, our consumables business had an impressive Q1 with high single-digit growth. Overall, we believe North America is achieving low single-digit growth. We credit the headwinds primarily to the infection prevention segment.

Howard Yu, Chief Financial Officer

Yes. To add to what Amir mentioned, I think our Q1 figures reflect the one-off low point for North America. If you consider our core growth separately, as Amir indicated, our imaging business grew at high single digits. Our Ormco business, which combines both wire and bracket products, as well as aligners, experienced robust double-digit growth. Overall, our premium implant business is performing admirably, too. Despite the infection prevention headwinds, we anticipate a positive second-half growth in this market and a long-term outlook of mid-single digits in this business.

Michael Cherny, Analyst

Understood and helpful. And if I could just circle back on the VBP question relative to China. As you think about your exposure between the public versus the private hospitals, when do you feel you will have visibility around, a, where VBP will impact your public hospital business? And then, b, I know at times in other markets there seems to be pricing spillover from public to privates. How are those conversations going with your significant private hospital market contracts about how they think about pricing in a world where the VBP could impact the public hospital pricing?

Amir Aghdaei, President and Chief Executive Officer

Yes, despite all the challenges, we are holding ongoing discussions with partners; over 70% to 75% of our business is in the private segment, and this proportion has been consistently increasing. Your assumption is accurate—the public sector will be impacted by the volume-based procurement, and it may have repercussions in the pricing strategy of the private market. Our focus on innovation, training, education, and effective commercial execution is essential in this context. Even in China, a full arch treatment is over $20,000. The cost of implants is relatively minor compared to the consumables. By providing robust support and training, we can retain our market position.

Operator, Operator

Our last question will come from Jason Bednar with Piper Sandler.

Jason Bednar, Analyst

Really just building on a couple earlier in the call. Just maybe on Carestream to start. Howard, when do we see some of the fruits from the pipeline that you've referenced now a few times? Or I guess maybe asked another way, how do you see the new product cycle and replacement cycle playing out now that the iOS assets are under your ownership?

Amir Aghdaei, President and Chief Executive Officer

Yes, happy to answer that, Jason. The current portfolio consists of a group of products. It includes 3 different products already in the market: the 3600 and 3700 models, plus a newly released model with wireless capabilities that was just launched. We've got a continuum of products that we can introduce to the market and begin building momentum, integrating these products into DTX and furthering our position in orthodontics and clear aligners. Our due diligence has identified significant opportunities for improvement and growth in this segment, focusing on quality and delivering outstanding products. For us, this market remains under-penetrated at less than 15%, with the benefits being substantial.

Jason Bednar, Analyst

Very helpful. And then maybe coming back to Nate's earlier question and just looking at trends between March and April, have you witnessed any capacity constraints or staffing dynamics hindering your capacity as you analyze the specialist and general dentists available in the market? Has that been an issue across the markets you compete in?

Howard Yu, Chief Financial Officer

Yes, I think it is essential to address our internal labor concerns. We have seen some localized tight challenges related to labor addition. However, we've been effectively managing this through EBS, improving our productivity. Long term, we recognize that having the best team is crucial. Our focus remains on attracting and retaining top talent as part of our culture, ensuring we remain the employer of choice.

Amir Aghdaei, President and Chief Executive Officer

We do see some labor shortages in dental offices, and this is where we can make a significant difference through our EBS. We are exploring opportunities for productivity and predictability, which are essential elements. We want to operate not only as a product provider but help dental offices enhance productivity, increase patient acceptance rates, and ultimately treat more patients. We're developing strong momentum and positive outcomes as a result of these initiatives. The labor shortage remains a challenge, but our focus on innovation and productivity improvements will mitigate impacts.

Operator, Operator

Thank you very much, everyone. I think that's all the time we have. We appreciate your time and look forward to following up with each of you after the call. Thank you.

Amir Aghdaei, President and Chief Executive Officer

Thank you.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's teleconference, and we appreciate your participation. You may disconnect at any time.