Business context and reporting period
Envista Holdings Corporation filed this unaudited Form 10-Q for the quarter ended July 2, 2021. The company supplies dental implants, orthodontic products, equipment and consumables through its Specialty Products & Technologies and Equipment & Consumables segments. Comparisons are with the quarter ended July 3, 2020, when results were heavily affected by COVID-19 disruptions.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales | $740.1 million | $362.0 million | $1,449.3 million | $909.2 million |
| Gross profit / margin | $411.9 million / 55.7% | $150.5 million / 41.6% | $809.2 million / 55.8% | $428.9 million / 47.2% |
| Operating profit (loss) / margin | $98.5 million / 13.3% | $(107.9) million / (29.8)% | $206.8 million / 14.3% | $(132.9) million / (14.6)% |
| Net income (loss) | $90.1 million | $(93.5) million | $161.8 million | $(110.7) million |
| Diluted EPS | $0.51 | $(0.59) | $0.91 | $(0.69) |
Q2 reported sales grew 104.4%; core sales growth, excluding currency effects and discontinued products, was 102.3%. For the six months, reported and core sales growth were 59.4% and 58.6%, respectively. Foreign exchange added 4.0 percentage points to Q2 reported sales growth and 3.4 points for the six-month period. The company attributed the rebound chiefly to higher patient demand and more dental offices operating than in 2020.
Q2 segment sales and operating profit were: Specialty Products & Technologies, $386.2 million and $74.1 million (19.2% margin); Equipment & Consumables, $353.9 million and $57.0 million (16.1% margin). Both segments swung from operating losses in the prior-year quarter.
Operating cash flow was $137.3 million for the six months, versus cash used of $57.6 million a year earlier. Capital expenditures were $28.5 million; net cash used in investing was $22.8 million. Financing used $463.1 million, principally reflecting $475.6 million of debt repayments. Cash fell to $553.9 million from $888.9 million at year-end 2020.
At July 2, 2021, total debt carrying value was $1,314.7 million, including $421.5 million classified as current and $893.2 million long term. The current classification of the convertible notes reflects that a stock-price condition permitted early conversion; it does not itself mean the notes were repaid. The company had no revolver borrowings and $750 million of revolving capacity. Current assets were $1,301.7 million and current liabilities $1,163.2 million. Management said available cash and operating cash flow were sufficient for expected needs. The company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Sales, margins and earnings rebounded sharply from the COVID-affected 2020 comparison; management cited improved volume and mix, lower restructuring costs and savings from prior productivity actions.
- The effective tax rate was (5.8)% in Q2 and 8.0% for six months, versus 23.5% and 26.4% in the comparative periods. The 2021 rates benefited from recognition of a deferred tax asset related to a Swiss tax-basis step-up and a reduced valuation allowance on Swiss net operating losses.
- Debt repayments reduced the Euro Term Loan Facility by $472.0 million in February. A June amendment extended the term loans’ maturity to September 2024 and increased the revolver from $250 million to $750 million; the company paid approximately $2.1 million in fees.
- Six-month interest expense increased to $31.6 million from $17.8 million, primarily due to higher debt balances and $12.7 million of interest expense on the convertible notes.
- Goodwill declined by $48.8 million, primarily from foreign-currency translation. Accumulated other comprehensive loss increased to $128.9 million from $91.8 million at year-end, including foreign currency effects.
Outlook, commentary, risks and unusual items
The filing provides no specific revenue, earnings or margin guidance. Management reported continued recovery in many markets but noted that recovery differed by region. It also described usual seasonality: sales generally rise in the second half, particularly in Q4, though COVID-19 could disrupt historical patterns.
COVID-19, including possible new variants, remains a material uncertainty. Potential effects include practice closures, weaker customer spending, delayed receivables, supply-chain disruption and uncertain demand. Management also cited risks from foreign exchange, competition, regulation, product development, acquisitions and the company’s debt obligations.
Restructuring charges were $7.7 million in Q2 and $15.8 million for six months, below the prior-year amounts of $59.9 million and $72.2 million. The 2020 period included a decision to exit part of the treatment-unit business and related impairment and inventory write-offs. Q2 2021 results also included the tax benefit described above.
Accrued legal contingencies were $42.6 million at July 2, 2021. Management said the ultimate outcome, net of accruals, was not expected to materially affect financial position, while resolution or increased accruals could materially affect results or cash flows in a period. The company reported no material changes to legal proceedings from its 2020 Form 10-K.
Important facts for investors to verify
- Assess the sustainability of the strong year-over-year growth and margin recovery against the unusually weak, pandemic-affected 2020 comparison.
- Monitor COVID-19 conditions, dental-practice activity, customer demand and supply-chain developments across markets.
- Track cash generation, working-capital requirements and the company’s ability to service debt; review convertible-note conversion terms and covenant headroom.
- Evaluate whether the Swiss-related tax benefits recur and how the effective tax rate develops.
- Follow legal contingencies, restructuring costs and foreign-currency effects. The filing does not provide a clear quantified outlook for these items.