Envista Holdings Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended October 1, 2021; comparisons are with periods ended October 2, 2020. Envista supplies dental implants, orthodontic products, equipment, consumables and related technologies. Its continuing businesses are Specialty Products & Technologies and Equipment & Consumables.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $607.3 million | $547.2 million | $1,857.1 million | $1,312.8 million |
| Gross profit / margin | $356.3 million / 58.7% | $308.4 million / 56.4% | $1,083.3 million / 58.3% | $714.8 million / 54.4% |
| Operating profit (loss) / margin | $81.7 million / 13.5% | $61.6 million / 11.3% | $260.1 million / 14.0% | $(30.0) million / (2.3)% |
| Continuing-operations income (loss) | $80.2 million | $23.6 million | $221.0 million | $(48.6) million |
| Net income (loss) | $92.9 million | $35.6 million | $254.7 million | $(75.1) million |
| Diluted EPS | $0.52 | $0.22 | $1.43 | $(0.47) |
- Q3 sales rose 11.0%; reported nine-month sales rose 41.5%. Core sales growth, a non-GAAP measure excluding currency and specified items, was 10.2% and 39.5%, respectively. The nine-month comparison reflects the pandemic-related disruption in 2020.
- Q3 segment sales and operating margins: Specialty Products & Technologies, $363.4 million and 16.9%; Equipment & Consumables, $243.9 million and 18.6%. Sales increased 14.7% and 5.9%, respectively, versus Q3 2020.
- Cash flow: Nine-month operating cash flow was $225.6 million, compared with $90.5 million in 2020. Investing cash outflow was $25.9 million; financing cash outflow was $467.4 million, including $475.7 million of debt repayments. Cash declined $250.1 million from year-end 2020 to $638.8 million.
- Liquidity and debt: Cash was $638.8 million. Total debt carrying value was $1,314.5 million, including $426.7 million of convertible notes classified as short-term and $887.8 million of long-term debt. The $750 million revolving facility was undrawn; the company reported compliance with debt covenants. Current assets were $1,766.4 million and current liabilities $1,269.2 million, including assets and liabilities held for sale.
Material changes and unusual items
- Improved sales volume and product mix, productivity savings and lower restructuring costs supported higher gross and operating margins. Interest expense fell in Q3, mainly reflecting repayment of $472 million of euro term debt and lower borrowing rates. Nine-month interest expense was $43.6 million, versus $41.2 million.
- Continuing-operations tax benefit was $10.3 million in Q3 and $3.7 million for nine months. The company attributed the unusually low effective tax rates to recognition of a deferred tax asset related to a Swiss tax-basis step-up and a reduced valuation allowance on Swiss tax losses.
- Nine-month foreign-currency translation losses were $64.3 million, contributing to accumulated other comprehensive loss of $152.6 million at October 1.
- Restructuring charges were $23.8 million for nine months, compared with $53.8 million in 2020.
Divestiture, outlook and risks
- Envista agreed to sell its KaVo Treatment Unit and Instrument Business to Planmeca for consideration of up to $455 million, including a potential earn-out of up to $30 million and subject to adjustments. Closing was expected at year-end 2021, subject to customary conditions. The business was reported as discontinued operations; its Q3 sales were $102.5 million and nine-month sales $302.0 million.
- Management said the sale supports a higher-growth, higher-margin portfolio and shifts the continuing revenue mix toward Specialty Products & Technologies. Net proceeds were intended to support portfolio transformation and disciplined capital deployment. The filing provides no specific quantitative earnings or revenue guidance.
- Management reported recovery in many markets but cautioned that COVID-19 and new variants could disrupt dental practices, demand, collections, supply chains and staffing. Other identified risks include failure or delay of the KaVo sale, failure to realize its benefits, rebranding costs and customer response, and resource demands from transition services.
- The company stated that liquidity sources were sufficient for expected needs. It also cited possible need for additional financing, uncertainty around economic conditions and foreign exchange, regulatory and competitive pressures, and litigation. It had accrued $39.1 million for certain legal matters; management did not expect unaccrued outcomes, in aggregate, to materially affect financial position, though a period’s results or cash flows could be affected.
Important facts for investors to verify
- Whether the KaVo transaction closed on the expected timeline, final proceeds and adjustments, and the realized operating and margin effects.
- Whether sales and margins continued to grow after the unusually weak 2020 comparison, including performance by segment and region.
- Cash conversion and working-capital trends: inventory increased to $274.3 million from $216.0 million at year-end, while cash declined to $638.8 million.
- Debt refinancing and liquidity: the convertible notes are classified as current because holders met a condition for early conversion; monitor conversion, repayment and covenant capacity.
- Effects of COVID-19, supply constraints, staffing, currency movements, Swiss tax benefits and the resolution or reassessment of legal contingencies.