Envista Holdings Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Envista completed its September 2019 IPO and December 2019 Split-Off from Danaher, becoming an independent public company.
Business context and reporting period
Envista develops, manufactures and sells dental implants, orthodontic products, dental equipment, consumables and services. It operates Specialty Products & Technologies and Equipment & Consumables, serving more than one million dentists in over 150 countries. Annual results before the Separation are combined carve-out results and include Danaher cost allocations; they may not reflect the costs of operating independently. Envista expects additional standalone public-company costs.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Sales | $2,751.6 million | $2,844.5 million |
| Gross profit / margin | $1,513.1 million / 55.0% | $1,601.8 million / 56.3% |
| Operating profit / margin | $277.5 million / 10.1% | $298.4 million / 10.5% |
| Net income | $217.6 million | $230.7 million |
| Diluted EPS | $1.60 | $1.80 |
| Operating cash flow | $397.5 million | $400.1 million |
| Capital expenditures | $77.8 million | $72.2 million |
GAAP sales fell 3.3%; management’s core-sales measure was flat after excluding currency, acquisitions and discontinued products. The MD&A also gives a total-sales-growth bridge of negative 3.5%, while the reported sales figures imply a 3.3% decline. Foreign exchange reduced 2019 sales growth by 2.5%, and discontinued products by 1.0%. Lower pricing and unfavorable mix contributed to gross-margin contraction. Operating profit was pressured by lower sales and incremental corporate costs, partly offset by savings and lower discretionary and R&D spending.
Fourth quarter: Sales were $720.5 million versus $759.0 million in Q4 2018; gross profit was $389.4 million versus $422.2 million; net income was $56.1 million versus $51.2 million. Basic and diluted EPS were $0.35 versus $0.40 diluted EPS in the prior-year quarter.
Segments: Specialty Products & Technologies sales were $1,342.7 million, down from $1,369.8 million; core sales grew 1.5% and operating margin declined to 17.0% from 17.6%. Equipment & Consumables sales were $1,408.9 million, down from $1,474.7 million; core sales declined 1.0% and operating margin fell to 7.5% from 8.2%. Emerging-market core sales grew at a mid-single-digit rate, led by China; developed-market core sales declined at a low-single-digit rate.
Net cash provided by operations less capital expenditures was approximately $319.7 million (calculated from reported figures). Year-end cash and equivalents were $211.2 million; total debt was approximately $1.325 billion, including $1.321 billion long-term debt. The $250 million revolving facility was undrawn, and the company reported compliance with its debt covenants. Current assets were $1,001.9 million and current liabilities were $709.2 million. No cash dividend was planned.
Material changes, outlook and risks
- The September IPO raised approximately $643 million net; Envista also borrowed approximately $1.3 billion. The proceeds, together with other consideration, were paid to Danaher as part of the Separation. Danaher completed the Split-Off in December 2019.
- Management cited investment in commercial capacity, emerging markets, implants, aligners, imaging and digital-dentistry software, alongside continued cost improvement through the Envista Business System. The filing provides no specific 2020 revenue or earnings guidance.
- Henry Schein represented 12% of 2019 sales. Its U.S. and Canada master distribution agreement for KaVo Kerr products expired December 31, 2019; the parties were discussing an extension, which management expected to occur.
- The company identified the COVID-19 outbreak first reported in China in December 2019 as a potential supply-chain and demand risk, with its effects uncertain. Brexit, foreign exchange, regulation, competition, distributor inventory and reliance on new-product adoption were also noted risks.
- Legal accruals were $87 million at year-end. An arbitration involving Nobel Biocare includes a claim for approximately $30 million; the company accrued probable and estimable damages but could not estimate potential loss above the reserve. Management stated that pending matters were not expected to materially affect overall financial position, results or liquidity, while acknowledging a matter could materially affect a particular period.
- The Separation agreements include indemnification and transition-service arrangements with Danaher. Tax-related restrictions may limit certain corporate transactions for two years after the Split-Off. A $43 million acquisition of Matricel was completed in January 2020, after year-end.
Important facts for investors to verify
- Reconcile the MD&A’s stated 3.5% total-sales decline with the sales figures showing a 3.3% decline, and review the definition and comparability of core sales.
- Track the extension and terms of the Henry Schein distribution agreement and any resulting changes in channel sales or inventory.
- Assess debt repayment and refinancing needs: the term loans mature in 2022, with approximately $1.323 billion of contractual debt obligations in the one-to-three-year category.
- Monitor standalone-company costs, segment margin trends, and whether growth investments in China, implants, Spark aligners and digital products produce sustained returns.
- Review the outcome and any reserve changes for the Nobel arbitration and other legal contingencies, as well as the operational and financial effects of COVID-19 and regulatory changes.