Envista Reports Third Quarter 2024 Results
For the quarter ended
2024 Guidance
For the full year 2024, we continue to expect a core sales growth of -1% to -4%, and adjusted EBITDA margins between 10% and 12%. We expect to return to growth in the fourth quarter.
Please note, we do not provide forward-looking estimates on a GAAP basis as certain information is not available and cannot be reasonably estimated.
Envista will discuss its quarterly results and provide an updated outlook for 2024 during an investor conference call today starting at
The conference call can be accessed by dialing 800-225-9448 within the
ABOUT ENVISTA
Envista is a global family of more than 30 trusted dental brands, including Nobel Biocare, Ormco, DEXIS, and Kerr united by a shared purpose: to partner with professionals to improve lives. Envista helps its customers deliver the best possible patient care through industry-leading dental consumables, solutions, technology, and services. Our comprehensive portfolio, including dental implants and treatment options, orthodontics, and digital imaging technologies, covers a wide range of dentists' clinical needs for diagnosing, treating, and preventing dental conditions as well as improving the aesthetics of the human smile. With a foundation comprised of the proven Envista Business System (EBS) methodology, an experienced leadership team, and a strong culture grounded in continuous improvement, commitment to innovation, and deep customer focus, Envista is well equipped to meet the end-to-end needs of dental professionals worldwide. Envista is one of the largest global dental products companies, with significant market positions in some of the most attractive segments of the dental products industry. For more information, please visit www.envistaco.com.
NON-GAAP MEASURES
All "Adjusted" amounts including core sales growth and free cash flow are non-GAAP items. Calculations of these measures, the reasons why we believe these measures provide useful information to investors, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these non-GAAP measures are included in the attached supplemental schedules. We do not reconcile forward looking non-GAAP measures to the comparable GAAP measures because of the inherent difficulty in predicting and estimating the future impact and timing of currency translation, acquisitions, discontinued products, and any other potential adjustments which would be reflected in any forecasted GAAP measure.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release are "forward-looking" statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include, among other things, the conditions in the
CONTACT
Telephone: (714) 817-7000
ENVISTA HOLDINGS CORPORATION |
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Three Months Ended |
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Nine Months Ended |
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Sales |
$ 601.0 |
|
$ 631.3 |
|
$ 1,857.7 |
|
$ 1,920.9 |
Cost of sales |
283.7 |
|
268.0 |
|
857.5 |
|
816.3 |
Gross profit |
317.3 |
|
363.3 |
|
1,000.2 |
|
1,104.6 |
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative |
270.9 |
|
257.7 |
|
858.3 |
|
796.7 |
Research and development |
25.5 |
|
22.3 |
|
72.4 |
|
73.6 |
|
— |
|
— |
|
1,153.8 |
|
— |
Operating profit (loss) |
20.9 |
|
83.3 |
|
(1,084.3) |
|
234.3 |
Nonoperating income (expense): |
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|
|
|
|
|
|
Other income (expense), net |
0.6 |
|
(32.1) |
|
(0.4) |
|
(24.7) |
Interest expense, net |
(11.9) |
|
(15.4) |
|
(36.5) |
|
(49.5) |
Income (loss) before income taxes |
9.6 |
|
35.8 |
|
(1,121.2) |
|
160.1 |
Income tax expense (benefit) |
1.4 |
|
14.3 |
|
(1.4) |
|
42.9 |
Net income (loss) |
$ 8.2 |
|
$ 21.5 |
|
$ (1,119.8) |
|
$ 117.2 |
Earnings (loss) per share: |
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|
|
|
|
|
|
Earnings (loss) earnings - basic |
$ 0.05 |
|
$ 0.13 |
|
$ (6.51) |
|
$ 0.71 |
Earnings (loss) earnings - diluted |
$ 0.05 |
|
$ 0.12 |
|
$ (6.51) |
|
$ 0.66 |
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Average common stock and common equivalent shares outstanding: |
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|
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Basic |
172.2 |
|
168.2 |
|
172.1 |
|
165.3 |
Diluted |
172.9 |
|
175.2 |
|
172.1 |
|
176.3 |
ENVISTA HOLDINGS CORPORATION |
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As of |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ 991.3 |
|
$ 940.0 |
Trade accounts receivable, less allowance for credit losses of |
392.1 |
|
407.5 |
Inventories, net |
265.6 |
|
258.8 |
Prepaid expenses and other current assets |
148.0 |
|
137.4 |
Total current assets |
1,797.0 |
|
1,743.7 |
Property, plant and equipment, net |
291.5 |
|
309.6 |
Operating lease right-of-use assets |
141.7 |
|
125.1 |
Other long-term assets |
250.6 |
|
180.5 |
|
2,333.8 |
|
3,292.2 |
Other intangible assets, net |
696.1 |
|
954.0 |
Total assets |
$ 5,510.7 |
|
$ 6,605.1 |
LIABILITIES AND EQUITY |
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Current liabilities: |
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|
Short-term debt |
$ 115.8 |
|
$ 115.3 |
Trade accounts payable |
172.1 |
|
179.5 |
Accrued expenses and other liabilities |
541.4 |
|
455.7 |
Operating lease liabilities |
36.2 |
|
30.3 |
Total current liabilities |
865.5 |
|
780.8 |
Operating lease liabilities |
117.4 |
|
109.9 |
Other long-term liabilities |
149.7 |
|
142.4 |
Long-term debt |
1,305.6 |
|
1,398.1 |
Commitments and contingencies |
|
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Stockholders' equity: |
|
|
|
Preferred stock, |
— |
|
— |
Common stock, |
1.7 |
|
1.7 |
Additional paid-in capital |
3,783.0 |
|
3,758.2 |
Accumulated (deficit) earnings |
(488.6) |
|
631.2 |
Accumulated other comprehensive loss |
(223.6) |
|
(217.2) |
Total stockholders' equity |
3,072.5 |
|
4,173.9 |
Total liabilities and stockholders' equity |
$ 5,510.7 |
|
$ 6,605.1 |
ENVISTA HOLDINGS CORPORATION |
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Nine Months Ended |
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Cash flows from operating activities: |
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Net (loss) income |
$ (1,119.8) |
|
$ 117.2 |
Noncash items: |
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|
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Depreciation |
31.6 |
|
26.8 |
Amortization |
63.7 |
|
75.9 |
Allowance for credit losses |
16.0 |
|
3.5 |
Stock-based compensation expense |
26.1 |
|
26.2 |
Loss (gain) on equity investments, net |
0.5 |
|
(3.6) |
Gain on sale of property, plant and equipment |
— |
|
(2.0) |
Restructuring charges |
— |
|
0.7 |
|
1,153.8 |
|
— |
Fixed assets impairments and other charges |
17.1 |
|
0.3 |
Non-cash operating lease costs |
23.1 |
|
19.9 |
Inducement expense related to exchange of convertible notes |
— |
|
28.5 |
Amortization of debt discount and issuance costs |
3.7 |
|
3.4 |
Deferred income taxes |
(46.8) |
|
— |
Change in trade accounts receivable |
(0.9) |
|
(33.0) |
Change in inventories |
(11.6) |
|
9.4 |
Change in trade accounts payable |
(7.5) |
|
(53.2) |
Change in prepaid expenses and other assets |
(12.9) |
|
5.4 |
Change in accrued expenses and other liabilities |
99.5 |
|
(26.1) |
Change in operating lease liabilities |
(31.5) |
|
(25.6) |
Net cash provided by operating activities |
204.1 |
|
173.7 |
Cash flows from investing activities: |
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|
|
Payments for additions to property, plant and equipment |
(25.2) |
|
(50.0) |
Purchases of investments held in rabbi trust |
(32.6) |
|
— |
Proceeds from sale of investments held in rabbi trust |
8.8 |
|
— |
Proceeds from sale of equity investment |
0.4 |
|
10.7 |
All other investing activities, net |
1.4 |
|
(10.5) |
Net cash used in investing activities |
(47.2) |
|
(49.8) |
Cash flows from financing activities: |
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Proceeds from stock option exercises |
2.0 |
|
7.5 |
Tax withholding payment related to net settlement of equity awards |
(4.0) |
|
(7.8) |
Proceeds from issuance of convertible notes due 2028 |
— |
|
500.2 |
Debt issuance costs related to issuance of convertible notes due 2028 |
— |
|
(13.5) |
Principal paid related to exchange of convertible notes due 2025 |
— |
|
(401.2) |
Proceeds from borrowings |
— |
|
323.5 |
Repayment of borrowings |
(100.0) |
|
(288.8) |
Debt issuance costs related to other borrowings |
— |
|
(4.5) |
All other financing activities |
(0.8) |
|
0.2 |
Net cash (used in) provided by financing activities |
(102.8) |
|
115.6 |
Effect of exchange rate changes on cash and cash equivalents |
(2.8) |
|
(22.2) |
Net change in cash and cash equivalents |
51.3 |
|
217.3 |
Beginning balance of cash and cash equivalents |
940.0 |
|
606.9 |
Ending balance of cash and cash equivalents |
$ 991.3 |
|
$ 824.2 |
ENVISTA HOLDINGS CORPORATION
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GAAP |
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Three Months Ended |
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Nine Months Ended |
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Gross Profit |
$ 317.3 |
|
$ 363.3 |
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$ 1,000.2 |
|
$ 1,104.6 |
Operating Profit (Loss) |
$ 20.9 |
|
$ 83.3 |
|
$ (1,084.3) |
|
$ 234.3 |
Net Income (Loss) |
$ 8.2 |
|
$ 21.5 |
|
$ (1,119.8) |
|
$ 117.2 |
Diluted Earnings (Loss) Per Share |
$ 0.05 |
|
$ 0.12 |
|
$ (6.51) |
|
$ 0.66 |
Operating Cash Flow |
$ 70.7 |
|
$ 95.5 |
|
$ 204.1 |
|
$ 173.7 |
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NON-GAAP * |
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Three Months Ended |
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Nine Months Ended |
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Adjusted Gross Profit |
$ 317.4 |
|
$ 364.3 |
|
$ 1,018.3 |
|
$ 1,111.9 |
Adjusted Operating Profit |
$ 43.8 |
|
$ 114.4 |
|
$ 172.8 |
|
$ 336.2 |
Adjusted Net Income |
$ 21.1 |
|
$ 75.5 |
|
$ 85.4 |
|
$ 219.5 |
Adjusted Diluted EPS |
$ 0.12 |
|
$ 0.43 |
|
$ 0.49 |
|
$ 1.25 |
Adjusted EBITDA |
$ 54.9 |
|
$ 123.5 |
|
$ 205.1 |
|
$ 363.7 |
Free Cash Flow |
$ 63.3 |
|
$ 77.1 |
|
$ 178.9 |
|
$ 123.7 |
|
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* |
For information on non-GAAP measures see "Reconciliation of GAAP to Non-GAAP Financial Measures" below. Also see the accompanying "Notes to Reconciliation of GAAP to Non-GAAP Financial Measures." |
ENVISTA HOLDINGS CORPORATION |
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Three Months Ended |
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Nine Months Ended |
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Sales |
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Specialty Products & Technologies |
$ 381.7 |
|
$ 399.5 |
|
$ 1,205.5 |
|
$ 1,226.5 |
Equipment & Consumables |
219.3 |
|
231.8 |
|
652.2 |
|
694.4 |
Total |
$ 601.0 |
|
$ 631.3 |
|
$ 1,857.7 |
|
$ 1,920.9 |
|
|
|
|
|
|
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Operating Profit (Loss) |
|
|
|
|
|
|
|
Specialty Products & Technologies |
$ 12.3 |
|
$ 61.4 |
|
$ 62.5 |
|
$ 188.2 |
Equipment & Consumables |
38.6 |
|
43.9 |
|
100.7 |
|
124.8 |
Other |
(30.0) |
|
(22.0) |
|
(1,247.5) |
|
(78.7) |
Total |
$ 20.9 |
|
$ 83.3 |
|
$ (1,084.3) |
|
$ 234.3 |
|
|
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Operating Margins |
|
|
|
|
|
|
|
Specialty Products & Technologies |
3.2 % |
|
15.4 % |
|
5.2 % |
|
15.3 % |
Equipment & Consumables |
17.6 % |
|
18.9 % |
|
15.4 % |
|
18.0 % |
Total |
3.5 % |
|
13.2 % |
|
(58.4) % |
|
12.2 % |
ENVISTA HOLDINGS CORPORATION |
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Adjusted Gross Profit and Adjusted Gross Margin |
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Three Months Ended |
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Nine Months Ended |
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|
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|
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Gross Profit |
$ 317.3 |
|
$ 363.3 |
|
$ 1,000.2 |
|
$ 1,104.6 |
Restructuring costs and asset impairments B |
0.1 |
|
1.0 |
|
18.1 |
|
7.3 |
Adjusted Gross Profit |
$ 317.4 |
|
$ 364.3 |
|
$ 1,018.3 |
|
$ 1,111.9 |
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|
|
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Gross Margin (Gross Profit / Sales) |
52.8 % |
|
57.5 % |
|
53.8 % |
|
57.5 % |
Adjusted Gross Margin (Adjusted Gross Profit / Sales) |
52.8 % |
|
57.7 % |
|
54.8 % |
|
57.9 % |
Adjusted Operating Profit |
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Three Months Ended |
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Nine Months Ended |
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Consolidated |
|
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|
|
|
|
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Operating Profit (Loss) |
$ 20.9 |
|
$ 83.3 |
|
$ (1,084.3) |
|
$ 234.3 |
Amortization of acquisition-related and other intangible assets |
18.7 |
|
23.9 |
|
63.7 |
|
75.9 |
|
— |
|
— |
|
1,153.8 |
|
— |
Restructuring costs and asset impairments B |
4.2 |
|
6.8 |
|
34.9 |
|
24.7 |
Litigation settlement C |
— |
|
— |
|
4.7 |
|
— |
Acquisition related expenses E |
— |
|
0.4 |
|
— |
|
1.3 |
Adjusted Operating Profit |
$ 43.8 |
|
$ 114.4 |
|
$ 172.8 |
|
$ 336.2 |
Adjusted Operating Profit as a % of Sales |
7.3 % |
|
18.1 % |
|
9.3 % |
|
17.5 % |
|
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|
|
|
|
|
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Specialty Products & Technologies |
|
|
|
|
|
|
|
Operating Profit |
$ 12.3 |
|
$ 61.4 |
|
$ 62.5 |
|
$ 188.2 |
Amortization of acquisition-related and other intangible assets |
14.4 |
|
15.7 |
|
43.1 |
|
47.3 |
Restructuring costs and asset impairments B |
0.2 |
|
1.7 |
|
21.1 |
|
9.5 |
Adjusted Operating Profit |
$ 26.9 |
|
$ 78.8 |
|
$ 126.7 |
|
$ 245.0 |
Adjusted Operating Profit as a % of Sales |
7.0 % |
|
19.7 % |
|
10.5 % |
|
20.0 % |
|
|
|
|
|
|
|
|
Equipment & Consumables |
|
|
|
|
|
|
|
Operating Profit |
$ 38.6 |
|
$ 43.9 |
|
$ 100.7 |
|
$ 124.8 |
Amortization of acquisition-related and other intangible assets |
4.3 |
|
8.2 |
|
20.6 |
|
28.6 |
Restructuring costs and asset impairments B |
1.0 |
|
5.0 |
|
4.2 |
|
14.0 |
Adjusted Operating Profit |
$ 43.9 |
|
$ 57.1 |
|
$ 125.5 |
|
$ 167.4 |
Adjusted Operating Profit as a % of Sales |
20.0 % |
|
24.6 % |
|
19.2 % |
|
24.1 % |
|
|
|
See the accompanying Notes to Reconciliation of GAAP to Non-GAAP Financial Measures |
Adjusted Net Income |
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Three Months Ended |
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Nine Months Ended |
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|
|
|
|
|
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Net Income (Loss) |
$ 8.2 |
|
$ 21.5 |
|
$ (1,119.8) |
|
$ 117.2 |
Amortization of acquisition-related and other intangible assets |
18.7 |
|
23.9 |
|
63.7 |
|
75.9 |
|
— |
|
— |
|
1,153.8 |
|
— |
Restructuring costs and asset impairments B |
4.2 |
|
6.8 |
|
34.9 |
|
24.7 |
Litigation settlement C |
— |
|
— |
|
4.7 |
|
— |
Loss (gain) on equity investments, net D |
— |
|
3.3 |
|
1.1 |
|
(3.6) |
Acquisition related expenses E |
— |
|
0.4 |
|
— |
|
1.3 |
Inducement and other expenses related to convertible notes exchange F |
— |
|
29.0 |
|
— |
|
29.0 |
Tax effect of adjustments reflected above G |
(10.2) |
|
(10.4) |
|
(53.8) |
|
(25.5) |
Discrete tax adjustments and other tax-related adjustments H |
0.2 |
|
1.0 |
|
0.8 |
|
0.5 |
Adjusted Net Income |
$ 21.1 |
|
$ 75.5 |
|
$ 85.4 |
|
$ 219.5 |
Adjusted Diluted Earnings Per Share |
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Three Months Ended |
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Nine Months Ended |
||||
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) |
$ 0.05 |
|
$ 0.12 |
|
$ (6.51) |
|
$ 0.66 |
Amortization of acquisition-related and other intangible assets |
0.11 |
|
0.14 |
|
0.37 |
|
0.43 |
|
— |
|
— |
|
6.67 |
|
— |
Restructuring costs and asset impairments B |
0.02 |
|
0.04 |
|
0.20 |
|
0.14 |
Litigation settlement C |
— |
|
— |
|
0.03 |
|
— |
Loss (gain) on equity investments, net D |
— |
|
0.02 |
|
0.01 |
|
(0.02) |
Acquisition related expenses E |
— |
|
— |
|
— |
|
0.01 |
Inducement and other expenses related to convertible notes exchange F |
— |
|
0.17 |
|
— |
|
0.16 |
Tax effect of adjustments reflected above G |
(0.06) |
|
(0.07) |
|
(0.31) |
|
(0.14) |
Discrete tax adjustments and other tax-related adjustments H |
— |
|
0.01 |
|
— |
|
0.01 |
Net (loss) to adjusted net income share adjustment I |
— |
|
— |
|
0.03 |
|
— |
Adjusted Diluted Earnings Per Share |
$ 0.12 |
|
$ 0.43 |
|
$ 0.49 |
|
$ 1.25 |
Adjusted Diluted Shares Outstanding |
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Three Months Ended |
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Nine Months Ended |
||||
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|
|
|
|
|
|
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Average common stock shares outstanding - basic |
172.2 |
|
168.2 |
|
172.1 |
|
165.3 |
Assumed exercise of dilutive options and vesting of |
0.7 |
|
7.0 |
|
0.9 |
|
11.0 |
Average common stock and common equivalent shares outstanding - diluted |
172.9 |
|
175.2 |
|
173.0 |
|
176.3 |
Adjusted EBITDA |
|||||||
|
|||||||
|
Three Months Ended |
|
Nine Months Ended |
||||
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ 8.2 |
|
$ 21.5 |
|
$ (1,119.8) |
|
$ 117.2 |
Interest expense, net |
11.9 |
|
15.4 |
|
36.5 |
|
49.5 |
Income tax expense (benefit) |
1.4 |
|
14.3 |
|
(1.4) |
|
42.9 |
Depreciation |
10.5 |
|
8.9 |
|
31.6 |
|
26.8 |
Amortization of acquisition-related and other intangible assets |
18.7 |
|
23.9 |
|
63.7 |
|
75.9 |
|
— |
|
— |
|
1,153.8 |
|
— |
Restructuring costs and asset impairments B |
4.2 |
|
6.8 |
|
34.9 |
|
24.7 |
Litigation settlement C |
— |
|
— |
|
4.7 |
|
— |
Loss (gain) on equity investments, net D |
— |
|
3.3 |
|
1.1 |
|
(3.6) |
Acquisition related expenses E |
— |
|
0.4 |
|
— |
|
1.3 |
Inducement and other expenses related to convertible notes exchange F |
— |
|
29.0 |
|
— |
|
29.0 |
Adjusted EBITDA |
$ 54.9 |
|
$ 123.5 |
|
$ 205.1 |
|
$ 363.7 |
Adjusted EBITDA as a % of Sales |
9.1 % |
|
19.6 % |
|
11.0 % |
|
18.9 % |
|
|
|
See the accompanying Notes to Reconciliation of GAAP to Non-GAAP Financial Measures |
Core Sales Growth 1 |
|||
|
|||
Consolidated |
% Change Three Month |
|
% Change Nine Month |
Total sales growth |
(4.8) % |
|
(3.3) % |
Plus the impact of: |
|
|
|
Currency exchange rates |
(0.5) % |
|
0.6 % |
Core sales growth |
(5.3) % |
|
(2.7) % |
|
|
|
|
Specialty Products & Technologies |
|
|
|
Total sales growth |
(4.5) % |
|
(1.7) % |
Plus the impact of: |
|
|
|
Currency exchange rates |
(0.7) % |
|
0.6 % |
Core sales growth |
(5.2) % |
|
(1.1) % |
|
|
|
|
Equipment & Consumables |
|
|
|
Total sales growth |
(5.4) % |
|
(6.1) % |
Plus the impact of: |
|
|
|
Currency exchange rates |
(0.2) % |
|
0.6 % |
Core sales growth |
(5.6) % |
|
(5.5) % |
|
|
1 |
We use the term "core sales" to refer to GAAP revenue excluding (1) sales from acquired businesses recorded prior to the first anniversary of the acquisition ("acquisitions"), (2) sales from discontinued products and (3) the impact of currency translation. Sales from discontinued products includes major brands or products that Envista has made the decision to discontinue as part of a portfolio restructuring. Discontinued brands or products consist of those which Envista (1) is no longer manufacturing, (2) is no longer investing in the research or development of, and (3) expects to discontinue all significant sales within one year from the decision date to discontinue. The portion of sales attributable to discontinued brands or products is calculated as the net decline of the applicable discontinued brand or product from period-to-period. The portion of GAAP revenue attributable to currency exchange rates is calculated as the difference between (a) the period-to-period change in sales and (b) the period-to-period change in sales after applying current period foreign exchange rates to the prior year period. We use the term "core sales growth" to refer to the measure of comparing current period core sales with the corresponding period of the prior year. |
|
|
Reconciliation of Operating Cash Flows to Free Cash Flow |
|||||||
|
|||||||
|
Three Months Ended |
|
Nine Months Ended |
||||
|
|
|
|
|
|
|
|
Net Operating Cash Provided by Operating Activities |
$ 70.7 |
|
$ 95.5 |
|
$ 204.1 |
|
$ 173.7 |
Less: payments for additions to property, plant |
(7.4) |
|
(18.4) |
|
(25.2) |
|
(50.0) |
Free Cash Flow (FCF) |
$ 63.3 |
|
$ 77.1 |
|
$ 178.9 |
|
$ 123.7 |
|
|
|
See the accompanying Notes to Reconciliation of GAAP to Non-GAAP Financial Measures |
NOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED)
A Represents impairment charge related to goodwill and certain intangible assets.
B We exclude impairment of certain long-lived assets, executive transition costs, and cost incurred pursuant to discrete restructuring plans that are fundamentally different (in terms of the size, strategic nature and planning requirements) from the ongoing productivity improvements, that result from application of the Envista Business System. These costs are incremental to the operating activities that arise in the ordinary course of our business and we believe are not indicative of Envista's ongoing operating costs in a given period.
C Represents the settlement of certain litigation matters.
D Represents gains or losses on equity investments.
E These represent acquisition related transaction expenses and integration costs with respect to business combinations.
F These costs primarily relate to inducement and other expenses incurred in connection with our partial exchange of our 2025 Convertible Senior Notes.
G This line item reflects the aggregate tax effect of all pretax adjustments reflected in the preceding line items of the table using each adjustment's applicable tax rate, including the effect of interim tax accounting requirements of Accounting Standards Codification Topic 740 Income Taxes.
H The discrete tax matters relate primarily to excess tax benefits from stock-based compensation, changes in estimates associated with prior period uncertain tax positions and audit settlements, tax benefits resulting from a change in law, and changes in determination of realization of certain deferred tax assets.
I The Company was in a net loss position for the nine months ended
Statement Regarding Non-GAAP Measures
Each of the non-GAAP measures set forth above should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measure, and may not be comparable to similarly titled measures reported by other companies. Management believes that these measures provide useful information to investors by offering additional ways of viewing
- with respect to Adjusted Gross Profit, Adjusted Operating Profit, Adjusted Net Income, Adjusted Diluted Earnings Per Share and Adjusted EBITDA, understand the long-term profitability trends of Envista's business and compare Envista's profitability to prior and future periods and to Envista's peers;
- with respect to Core Sales, identify underlying growth trends in Envista's business and compare Envista's revenue performance with prior and future periods and to Envista's peers;
- with respect to Adjusted EBITDA, help investors understand operational factors associated with Envista's financial performance because it excludes the following from consideration: interest, taxes, depreciation, amortization, and infrequent or unusual losses or gains such as goodwill impairment charges or nonrecurring and restructuring charges. Management uses Adjusted EBITDA, as a supplemental measure for assessing operating performance in conjunction with related GAAP amounts. In addition, Adjusted EBITDA is used in connection with operating decisions, strategic planning, annual budgeting, evaluating Company performance and comparing operating results with historical periods and with industry peer companies; and
- with respect to Free Cash Flow (the "FCF Measure"), understand Envista's ability to generate cash without external financings, invest in its business and grow its business through acquisitions and other strategic opportunities. A limitation of free cash flow is that it does not take into account the Company's debt service requirements and other non-discretionary expenditures, and as a result the entire Free Cash Flow amount is not necessarily available for discretionary expenditures.
- with respect to Adjusted Diluted Shares Outstanding, allows for the dilutive impact of stock options, restricted stock and performance stock units and assumed conversion of the convertible senior secured notes due 2025 as the Company is reporting adjusted net income compared to net loss under GAAP;
Management uses these non-GAAP measures to evaluate the Company's operating and financial performance.
The items excluded from the non-GAAP measures set forth above have been excluded for the following reasons:
- With respect to Adjusted Gross Profit, Adjusted Operating Profit, Adjusted Net Income, Adjusted Diluted Earnings Per Share and Adjusted EBITDA:
- We exclude the amortization of acquisition-related and other intangible assets because the amount and timing of such charges are significantly impacted by the timing, size, number and nature of the acquisitions we consummate. While we have a history of significant acquisition activity, we do not acquire businesses on a predictable cycle, and the amount of an acquisition's purchase price allocated to intangible assets and related amortization term are unique to each acquisition and can vary significantly from acquisition to acquisition. Exclusion of this amortization expense facilitates more consistent comparisons of operating results over time between our newly acquired and long-held businesses, and with both acquisitive and non-acquisitive peer companies. We believe, however, that it is important for investors to understand that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.
- With respect to the other items excluded from Adjusted Gross Profit, Adjusted Net Income, Adjusted Operating Profit, Adjusted Diluted Earnings Per Share and Adjusted EBITDA, we exclude these items because they are of a nature and/or size that occur with inconsistent frequency, occur for reasons that may be unrelated to Envista's commercial performance during the period and/or we believe that such items may obscure underlying business trends and make comparisons of long-term performance difficult.
- With respect to core sales, we exclude (1) the effect of acquisitions and divested product lines because the timing, size, number and nature of such transactions can vary significantly from period-to-period and between us and our peers, which we believe may obscure underlying business trends and make comparisons of long-term performance difficult, (2) sales from discontinued products because discontinued products do not have a continuing contribution to operations and management believes that excluding such items provides investors with a means of evaluating our on-going operations and facilitates comparisons to our peers, and (3) the impact of currency translation because it is not under management's control, is subject to volatility and can obscure underlying business trends.
- With respect to the FCF Measure, we adjust for payments for additions to property, plant and equipment (net of the proceeds from capital disposals) to arrive at the amount of operating cash flow for the period that remains after accounting for the Company's capital expenditure requirements.
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