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Envista Holdings Corporation (NYSE:NVST)
Q3 2020 Earnings Call
Oct 29, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

My name is Angela and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to the Envista Holdings Corporation's Third Quarter 2020 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference.

John Bedford -- Vice President, Investor Relations

Thanks, Angela. Hello everyone 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 would like to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations 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 and will remain archived until our next quarterly call.

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, all references in these remarks and supplemental materials to company's specific financial metrics relate to the third quarter of 2020 and all references to period to period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals or 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 or anticipate will 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. Thanks, John. And welcome everyone to Envista's third quarter 2020 earnings call. We are pleased with our third quarter results, the dental markets' recovery to-date and our progress on strategic initiatives, leading to a meaningful improvement in our revenue, adjusted EBITDA and a free cash flow. This September marked our first anniversary as a public company. Over the past year, we have made tremendous progress to improve the long-term prospects of Envista. In our effort to create a more focused and competitively advantaged company, we launched several transformative products undertook an effort to permanently improve our cost structure and exited non-strategic businesses. To-date, the combination of these efforts is a strong business model with more than 85% of our revenues driven from consumables and small equipment. One of our most important accomplishments is the refinement of our company culture, which is one of customer centricity, diversity and inclusion, innovation and continuous improvement. I want to recognize our manufacturing and distribution employees who have embodied many of these attributes throughout the last several months. They were the last to leave and first back to work to help ensure our customers have the products that they need to provide dental care to their patients. I also want to thank our employees, customers and partners for their sacrifices, dedication and support. Your passion to improve the quality of life of patients is what makes this industry great. Together, we are furthering our objective to improve access to dental care across the globe. Let me now provide you with an update on our priorities to accelerate growth, improve margin and reshape our portfolio. We started to improve Envista's underlying growth rate, the revenue from infection prevention, the Spark Clear Aligners and the N1 implant system contributing more than 300 basis points to Envista in the quarter. Additionally, our orthodontic business grew at low double-digit rate, showing the strength of both our brackets and wires and clear aligner businesses. Our infection prevention team in Romulus is a great example of how the roots of EBS, the continuous improvement mindset, is impacting our business. The team held several kaizens and process improvement events to enhance and sustain operational efficiency of the manufacturing and distribution process. This effort, combined with our capacity investment in the business, helped to increase output of our disinfectants by more than 50% in Q3 and drive over 30% revenue growth in our infection business overall. We also obtained EPA approval for CaviWipes 2.0, our latest version of surface disinfectant wipes, which has kill claims for over 40 pathogens. This short two-minute kill time, its effectiveness on many pathogens and good material compatibility would help differentiate our business in the medical industry. We believe building a bigger presence in the medical market will lead to a more sustainable demand for infection prevention products as pandemic subsides. Our orthodontic business performance further validates our strategy of providing a continuum of options that allow clinicians to make best treatment choices for their patients. The business is well positioned to capitalize on growth in an underpenetrated industry with a significant international position, a healthy new product pipeline in both brackets and wires and clear aligners and an innovative education program. Our orthodontic business has more than 70% of its revenue outside North America with a leading position in China, a geography which has sustained double-digit growth over the past several years and has grown through the first nine months of 2020. Our most recent orthodontic innovation is our Spark Aligner -- Clear Aligner system, which has gained popularity among our customers and their patients due to ease of use of its software, a clear more sustained resistance and comfortable aligner design. In the third quarter, we doubled our aligner manufacturing capacity while reducing customer lead time by more than 40%. Commercially, the number of active doctors using Spark has grown by more than 50%, helping to drive and increase our daily case submissions from the beginning of July to September. This puts Spark on track to contribute over 100 basis points of growth to Envista in the fourth quarter. Training and education are also important differentiators. And in 2020, we have partnered with key experts to train thousands of orthodontists across the globe. Finally, less than 15 million orthodontic cases globally per year and an addressable market of more than 500 million people who need and can afford orthodontic treatment, this is substantial long-term growth runway for the industry. Turning to our margin improvement program. We managed expenses and executed well against our $100 million permanent cost reduction program, which is a testament to the disciplined approach the Envista business system brings to planning and deployment. Our EBS office has led this initiative since March,driving focus by creating a detailed project road map and holding weekly progress meetings involving senior management where we have those key obstacles to ensure that they deliver on our commitments. We continue to make progress on our permanent cost savings initiatives, realizing more than $15 million savings during the quarter. In total, we reduced our operating expenses by more than $35 million through a combination of these efforts, temporary savings measures and other discretionary spend reductions. Execution of these margin initiatives helped to drive our adjusted EBITDA margins above 20% for the third quarter. As we move forward, we will continue to strike a balance of margin expansion, while accelerating investment in some of our best growth opportunities. We also made progress in building a better, stronger and more integrated workflow-oriented portfolio. We believe the ability to integrate the industry's largest installed base of imaging solutions with our DTX workflow software and innovative treatment solutions did help our customers become more productive while providing their patients with better predictable outcomes. We took our last orders for our Brazilian and Pelton & Crane treatment unit businesses in the second quarter and anticipate completing most remaining obligations by end of the year. Going forward, we intend to maintain an active view toward portfolio management and are in the process of exiting certain lower growth, lower margin product categories and geographies, which collectively amount to less than 2% of 2019 revenues. Finally, the strong cash flow performance in the quarter has placed our balance sheet in the best shape since our IPO with net debt now approximately $1 billion. This will position us well to further our inorganic capital deployment strategy as we move into a more normalized environment. Let me now turn it to Howard to go through the financials in more detail.

Howard Yu -- Senior Vice President and Chief Financial Officer

Thanks, Amir. Third quarter sales declined 2.9% to $640.5 million. Sales were unfavorably impacted 2.6% due to discontinued products and were positively impacted 0.1% from acquisitions and 0.8% from currency. Core sales decreased approximately 1.2%, a significant improvement in growth from the first half of 2020 as global dental market demand has recovered faster than anticipated. The improving performance was led by our consumables businesses, which increased at a low-single digit rate.

Geographically, sales in the developed markets were up low-single digits as patients have returned for treatment with most offices now open for non-emergency care. In addition to improving patient volume, our U.S. results were particularly strong due to the robust demand in our infection prevention products. In Western Europe, we experienced year-over-year growth in most major countries, except for the U.K., where we have yet to see a broad-based resumption of elective dental procedures.

In emerging markets, China returned to high-single digit growth due to strong performance in our specialty businesses. Our specialty business did particularly well in private sector where actions we have taken to increase our market share helped to drive double-digit growth increase in revenue. Outside of China, other emerging markets declined at a double-digit rate as the COVID-19 outbreak suppressed demand.

Our adjusted gross margins of 54.5% declined 120 basis points, due in part to foreign currency and product mix as we build capacity for new products in our specialty business. Adjusted operating profit margin was 18.7%, an increase of 340 basis points, largely driven by our cost reduction initiatives. We have secured more than 80% of our permanent cost reduction program goal of $100 million and remain on track to be completed by the end of the fourth quarter. Our cost actions have led to year-over-year decrease in personnel and direct spending by more than 15% in the quarter.

Profitability substantially increased with adjusted EBITDA growing by 18.6% to $132 million. Our 2020 third quarter adjusted EPS of $0.48 is an increase of approximately 40% in comparison to the 2019 third quarter results adjusted to include incremental corporate costs and interest expense of approximately $29 million from being a stand-alone public company.

The stronger operational performance and expense management helped to return the business to cash generation in the third quarter with free cash flow of $135 million, an increase of more than 70% from the prior year. The team did an outstanding job with collections, reducing inventory built up before the pandemic and managing terms with suppliers, which also helped to lead better performance in the quarter. We fully repaid our revolving credit facility and ended the quarter with more than $700 million of cash, leaving our balance sheet in a very strong position exiting the quarter.

Turning now to our two business segments. Our Specialty Products & Technologies segment sales were down 0.3%, while core revenue declined 1.3%. Our orthodontic business grew at a low double-digit rate with substantial contribution from both bracket and wires and clear aligners. Notably, bracket and wires increased at a high-single digit rate with mid-teens growth in developed markets as orthodontists have seen a significant increase in volumes across their practices. While this is due in part to pent-up demand from office closures during the first half, there is also a considerable amount of new case start activity occurring and our business exited the quarter with a healthy backlog.

Patients are taking advantage of more flexible work and school schedules and in many cases more discretionary income due to canceled leisure activities. This is particularly true within the teen segment, which makes up a large share of our orthodontic business.

In China, we held the Ormco Forum in the third quarter, which was the first major event since the onset of the pandemic. During the two-day session, the team delivered a comprehensive education program to more than 1,000 healthcare providers and featured three new products; Spark Clear Aligners, our aesthetic bracket system Symetri, and our flagship Damon DQ2 bracket system. The immediate engagement that the event generated illustrates the opportunity that exists in the China market.

Our implant business declined at a mid-single digit rate primarily due to weakness in emerging markets outside of China where conditions have remained challenging. At Nobel, we are encouraged by the early progress on commercial execution and new product initiatives. In North America, Nobel's revenue from our DSO customers increased at a mid-single digit rate as our strategic partnerships continue to expand. In Western Europe, a combination of our successful product launches and improving sales force execution helped to drive growth at Nobel, while setting us up for better long-term performance.

Examples of new product launches, which contributed to this performance, are TiUltra and Xeal, which were launched in Europe in the second quarter of 2019. These new implant and abutment surfaces promote earlier osseointegration, soft tissue attachment and better aesthetics. Despite the pandemic, we shipped more than 100,000 implants with this technology in 2020.

Specialty Products & Technologies' adjusted operating profit margin increased by 40 basis points to 22.1%, due primarily to cost savings from our structural program, which were partially offset by increased investment in clear aligners. Our Equipment & Consumables segment sales decreased 5.2% while core sales decreased 0.6%. Discontinued products adversely impacted sales by 4.7% and we anticipate discontinued products will have an adverse impact of approximately 6.5% of segment sales in the fourth quarter of 2020.

Traditional consumables increased at a high-single digit rate, led by infection prevention business, which grew more than 30%. We anticipate the strong performance in infection prevention to continue as our backlog position remains at near record levels of more than $30 million entering the fourth quarter.

In our restorative and endodontic businesses, we experienced a modest decline, primarily due to lower procedure volume, which has gradually improved through the quarter. Also contributing to the improvement in restorative volume was the introduction of our SimpliShade composites. SimpliShade features just three shades that blend well with an entire range of tooth colors in comparison to traditional composites, which require more than 16. This allows dentists to more easily match two shades, which improves efficiency while reducing inventory requirements. Launched in North America in September, this product helped drive an increase in end-user demand of more than 5% for our composite portfolio for the month.

Our equipment business declined at mid-single digit rate with significant sequential improvement in revenue in all product categories. The equipment business has been more resilient than originally anticipated as dentists' willingness to make planned capital investments has been supported by improving patient volume and government support of capital purchases in select geographies.

We are particularly pleased with the strong demand of our imaging workflow solutions, including our 3D CBCT portable x-ray and sensor products, which are helping clinicians operate their practices more efficiently. Sales from these imaging products increased slightly in the quarter. Equipment & Consumables' adjusted operating profit margin increased 920 basis points to 20.6% impacted both by a favorable product mix and a tremendous job by the team executing on our cost reduction program, which drove more than 400 basis points of improvement.

With improving growth in our infection prevention business, the exit of our treatment center business in North America and Brazil and sustained cost reductions, we anticipate that the Equipment & Consumables business will continue to have better operating margins going forward.

I'll now turn it back to Amir who will walk you through some details of our current operating environment.

Amir Aghdaei -- President and Chief Executive Officer

Thanks, Howard. While it has been a challenging year in the dental industry, we feel confident that the progress we have made on our priorities to accelerate growth, improve margin and reshape our portfolio have made us a stronger company. Our new products and growth priorities contributed more than 300 basis points to revenue in the third quarter and our China infection prevention and orthodontic businesses are delivering strong results.

Our margin improvement programs helped reduce operating expenses by more than $35 million, while expanding EBITDA margin above 20%. We started reshaping our portfolio by exiting Pelton & Crane and our Brazilian treatment unit businesses, leading to an integrated and workflow-focused portfolio that has more than 85% of revenue from consumables and small equipment.

We are encouraged by the recovery in the dental market over the past two quarters, which has continued into October. We entered the fourth quarter with a healthy order backlog across our business and particularly within our equipment business, which had positive order growth in the third quarter and a book-to-bill ratio of 1.1.

For Equipment & Consumables, our inventory levels at large distributors are similar to those seen in the second quarter and are down more than 40% year-to-date. The above data point leave us encouraged about the health of our business. It is important to note that our physical calendar has three fewer selling days in the fourth quarter in comparison to 2019, which we estimate will lead to an adverse impact of about 4% of sales on a year-over-year basis.

Geographically, we have seen stable conditions to-date in comparison to the third quarter across most geographies. North America and Western Europe, which makes up 70% of our revenue, have built up momentum as a result of pent-up demand being replaced by new patients seeking treatment. China representing about 10% of our business has seen the most rebound and we anticipate another quarter of improving growth. In emerging markets outside China, we have yet to see a significant rebound in dental activity as access to healthcare remains challenged by the current pandemic.

Despite the current rising COVID case count around the world, dentists' offices have largely remained open to-date during this new wave of outbreaks. This includes the lockdowns announced yesterday in France and Germany. While we are reassured about this and the resilience of the dental market, we remain cautious given rising case counts and lockdowns, which may lead to lower patient volumes in the near-term.

As we look past the pandemic, the long-term prospects of the dental industry are bright. This is a resilient industry that now has more patients who are underserved, a growing need for more efficient solutions and many underpenetrated disciplines, including orthodontics and implantology. We believe it's our purpose to help make dental care readily available to more people, improve productivity and predictability of treatment options and ultimately create a better quality of life for patients.

John Bedford -- Vice President, Investor Relations

Thanks, Amir. That concludes our formal comments. Angela, we're now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from the line of Jeff Johnson with Baird. Please go ahead, sir.

Jeff Johnson -- Robert W. Baird -- Analyst

Thank you. Good afternoon, guys. Lot of places I could start, but let me just focus in on two margin questions, if I could, this afternoon. First, Amir, the operating margin in equipment and consumables at 20.6%. Was there anything one-time in that? I mean, obviously we see a lot of the drivers there that are helping and that's encouraging. But should we think of upper teens 20% being a new run rate that we can carry forward over the next couple of years in our model?

Amir Aghdaei -- President and Chief Executive Officer

So -- thank you, Jeff. As we had outlined before, we have made significant changes in this business. The exit of low margin low growth part really has helped. We have redefined the business in the long run. We have taken significant amount of expenses out of this. And what we expect to see is, probably above 10% operating profit, 10% to 15% operating profit moving forward, we are seeing improvement in this business from a margin perspective. And our intention is to maintain that momentum as we go forward.

As we described before, we have done a series of temporary as well as permanent cost action. And by far, majority of our permanent cost actions have been in this segment. It has given us an opportunity to invest in a higher growth segment as we talked about in infection prevention N1 and Spark and we expect that trend to continue as we go forward. This portfolio now is in a far better place than we have ever had it before and we expect that momentum to continue.

Jeff Johnson -- Robert W. Baird -- Analyst

That's helpful. Thank you. And then -- and maybe on the other side of the business on specialty then, there's a talk -- there's some talk out there about lear aligners really gathering steam and taking share relative to brackets and wires in a post-COVID world for reasons that I'm sure you understand. One, are you seeing that happen? Two, is that a good thing for your business? Would you take the trade out of a Spark sale versus a DQ2 sale or something like that going forward?

And lastly, next year, over the next four to six quarters, margins in that business, as Spark manufacturing ramps, is there accretion in the margin as Spark ramps? Or are there some up -- some higher manufacturing costs initially that you'll have to work your way through until you really get efficient on that manufacturing side? Thank you.

Amir Aghdaei -- President and Chief Executive Officer

Yes. Yes, of course. We see a strong rebound across orthodontic business. We're seeing demand across their practices. We are not seeing a meaningful shift for Damon customers. We continuously serve and talk to our own customers. Clear aligners accelerating with over 100% growth in case submission. Bracket and wire growing in high-single digit in the second quarter and the third quarter, including double-digit growth in developed market.

Our orthodontic business is really differentiated versus others because of the following reasons. Over 70% of our revenue is outside U.S. We are overexposed to China, which is growing double-digit over the last several years. We're continuously doing innovative products in this space, not only on Spark in Clear Aligners, but also in bracket and wire in Damon. And our training, we got a leading program training activities that has -- this year alone has trained over thousands of orthodontists annually. And this year, we have really accelerated that. What we have done in here, we have provided choice to orthodontists, that they can decide what is the best answer across bracket and wire, as well as aligner. Last thing I want to highlight in here and I answered your question about the margin. This market is less than 5% penetrated. We think that there is significant opportunity to expand bracket and wire as well as clear aligners.

Now, on the margin, we continue to invest and expand capacity for our clear aligner. And we think that, that combination will give us an opportunity to have a portfolio that assesses all the needs of customers by adding close to about $100 million business into portfolio over the next few years. That top line will give us an opportunity to continue to increase margin as we go forward. We have contemplated that. It is part of our plan. And we will see that ramp up as we continue to move forward.

Operator

And your next question is from the line of Elizabeth Anderson with Evercore. Please go ahead.

Elizabeth Anderson -- Evercore ISI -- Analyst

Hi, guys. Thanks so much for the question and congrats on a really nice quarter. One thing I was thinking about in terms of -- you mentioned obviously the commentary about October still looking good in the book-to-bill on the equipment side that was very helpful. Thank you. How do we think about the return of guidance? Is that something that you guys have contemplated either for fiscal '20 or obviously for fiscal '21?

Howard Yu -- Senior Vice President and Chief Financial Officer

Yeah. So, Elizabeth, thanks for the question. Yeah, we feel pretty good about what we're seeing. And as you indicated, consistent with the improvement in Q3, we're also seeing that here in October. We think that we provided some pretty good color overall as it relates to kind of broad-based expectations for us going into the quarter here. And as it relates to next year, we'll clearly go through our budgeting process and also monitor what's going on here in the marketplace. And we'll take that kind of quarter-by-quarter as it relates to providing formal guidance.

Elizabeth Anderson -- Evercore ISI -- Analyst

Okay. That's helpful. And obviously, as you mentioned in your comment, Howard, your cash position is very much improved and quite robust. And you talked about how you're -- it would be helpful for M&A. But I was wondering how you weigh kind of the M&A opportunity is and if you could talk a little bit maybe about the opportunities and sort of how valuations are trending as well as how you weigh M&A versus, say, repaying more debt or the preferred or something like that?

Howard Yu -- Senior Vice President and Chief Financial Officer

Yeah. So, I mean we feel really good about our cost actions and the overall improving operating environment. As Amir indicated, that puts us at a position of about net debt of around $1 billion. And if you think about our operating performance here in the quarter, our leverage rate gets back to about 3 times, if you look past Q2. And so, we're going to be thoughtful overall about what we can do. But we're in a good place to take advantage of any value-creating opportunities. And so, we continue to monitor our funnel and we'll act accordingly.

Elizabeth Anderson -- Evercore ISI -- Analyst

Okay. And have valuations changed very much in terms of the types of opportunities that are available?

Howard Yu -- Senior Vice President and Chief Financial Officer

I mean, we're seeing in some cases them overall going up a bit. And then in others, we think that there may be some opportunities with valuations falling off a bit as well. It just kind of depends on the respective areas.

Elizabeth Anderson -- Evercore ISI -- Analyst

Okay. Perfect. That's helpful. Thank you.

Howard Yu -- Senior Vice President and Chief Financial Officer

Sure.

Operator

And your next question is from the line of Jon Block with Stifel. Please go ahead, sir.

Jon Block -- Stifel -- Analyst

Hi. Thanks for your time, guys. Good afternoon. Nice quarter. Maybe, Amir or Howard, just to start, you're talking about the strong industry momentum into October. And can you give us some more color there or maybe quantify it? Maybe if possible just provide us with an Envista core sales number into October. Just sort of curious on how you think the industry or you guys exited September and how that growth then trended into October would be very helpful.

Amir Aghdaei -- President and Chief Executive Officer

Yeah. Hi, Jon. The trend has continued. So, if we go back a little bit in the March-April timeframe, we saw a rapid growth throughout Q2. And then in Q3 that continued. And we saw -- we have seen a level of stabilization. And as we talked about a little bit of a backlog as well as what we have seen the book-to-bill, we're really encouraged with what we've seen in October more of a continuation of what we saw in September.

And by categories, that has -- we haven't seen any radical shift in any of the product category. We see that continuation, what we saw in September carried through the quarter, carried through October. We are, as I mentioned, cautiously optimistic in here as we move forward. We mentioned we got a few less days in Q4. But we are watching the situation very carefully country-by-country, procedure-by-procedures and we're trying to be cautious to make sure that we are understanding, but so far what we can tell you as of now, we are optimistic. We are cautiously optimistic. We encourage messages that we are getting from our sales organization, our partners as well as practitioners. They are all pointing to more of stabilization as we go forward.

Howard Yu -- Senior Vice President and Chief Financial Officer

Yeah, Jon, just to mention here though, yeah, Amir comments all consistent with what we've seen through the month. But just as a caution, we're not yet through October here. We still have a few more days here in the month as well.

Amir Aghdaei -- President and Chief Executive Officer

Right, right.

Jon Block -- Stifel -- Analyst

Got it. Fair enough. And then, just to pivot maybe to the pipeline and maybe a two-part question there. Can you just give us a brief update, maybe I missed a bit on the regulatory process for N1 here in the U.S. And on Spark, Amir, I know some of us have done our checks on Spark and it's coming back pretty favorable. Can you just talk to us on your manufacturing capabilities? I mean, hypothetically if that product were to go from $20 million, I think you sort of alluded to $50-ish million next year, but let's just say the demand was $80 million, $90 million, could you guys actually get there from a manufacturing standpoint? Thanks for your time.

Amir Aghdaei -- President and Chief Executive Officer

Sure, of course. Jon, let me just answer the Spark first and I'll come back to N1. We have enough capacity. We have built enough momentum manufacturing capacity to deal whatever is ahead of us in 2021. We doubled the capacity in Q3. We're continuing to add capacity. The case submission has come through and we are optimistic about what we are seeing here.

And as I said, the combination of bracket and wire and clear aligner has really reenergized this segment as a whole and we have just continued to add to it. So we do not have a capacity challenge. Furthermore, since mid-August we have been able to reduce the turnaround time by over 40% and we have been able to maintain that. So, answering the question, we are excited about it. Team has been doing an incredible job using EBS to improve productivity quality delivery and we think that that trend is going to continue moving forward.

N1 obviously is approved in Europe. We have launched it in eight countries across Europe already. Obviously, the COVID situation has had some impact how many of them can we do face-to-face. But we have it in the hands of over 100 customers so far. We are getting great feedback and we are seeing the orders are coming through and we're going to have more of a measured rollout and we are building additional capabilities around this with abutment and prosthetics option, which is going to help us to roll this out a lot broader.

From an N1 and FDA approval, we're in the process of working with FDA answering questions and we're going through that process. We don't have any specific time line. A lot of it has to do with how quickly this process goes through. We're considering this to be available in the United States more in the second half later half of 2021. But we think the combination of activities that we have done around commercial activities, new products should put this business in a more of a mid-single digit growth as we go forward.

Jon Block -- Stifel -- Analyst

Great. Very helpful. Thank you guys.

Amir Aghdaei -- President and Chief Executive Officer

Of course, Jon.

Operator

And your next question is from the line of Nathan Rich with Goldman Sachs. Please go ahead.

Nathan Rich -- Goldman Sachs -- Analyst

Hi. Good afternoon. Thanks for the question. Just going back to the prior question on kind of cadence of growth through the quarter, Amir, I guess did you see improvement kind of over the course of the quarter? And if so, does that mean that October is maybe trending a bit better than the down 1.2% that you did for the third quarter overall? And then, as we think about the fourth quarter, how would you kind of give us some sense of the range of outcomes? You mentioned there could be some lockdowns that are put in place, but it's probably unlikely that practices will have to close again. So could you help us think about maybe how much variability you would expect in the fourth quarter given what we could see play out?

Amir Aghdaei -- President and Chief Executive Officer

Yes. Good. Nathan let me give you some facts and data and see if that really helps. We saw a combination of IPS infection prevention N1 and Spark adding 300 basis point year-over-year growth in Q3. We see that continuing into Q4. We saw a positive order growth of almost mid-single-digit and the book-to-bill in equipment of 1.1. So walking into Q4 with that kind of a setup inventories are down almost 40% on Equipment & Consumables year-over-year. We -- since the beginning of the year we expect the sell-in to match sell-out as we go forward in here. And as we really move forward, we expect consumable to continue to outperform equipment.

Ortho continues to be -- now everything that we have seen has been a really positive thing. Implant outside emerging market except China has been consistent. Infection prevention consistent equipment got a good backlog. The underlying factors in here have been pretty positive. And unless we are seeing a significant lockdown across the organization which I'm yet to see across geography, we are yet to see our hope is that this what we saw in Q3 is going to continue through Q4 considering that we have three fewer days in 2019 -- compared to 2019 which is about 4% in comparison.

To frame this up, we think that that continuation is going to help us. New product is going to help us expenses that we have taken out the permanent expenses that we have taken out is going to help us and allow us to make additional investment. But as you can imagine this is a fluid environment and we're getting the same information on a daily basis and we're watching that very carefully to see what that will look like on a weekly and a monthly basis.

As Howard talked about, there is a couple of more days in October left, but so far we are positive about what we are seeing.

Nathan Rich -- Goldman Sachs -- Analyst

Thanks. That's helpful. And Amir, can you remind us how equipment backlog translates to sales? And what that process looks like? And if you're seeing -- I think you said mid single-digit growth in the backlog is that a good approximation for what you would expect equipment to do over the next quarter or so as that backlog burns?

Howard Yu -- Senior Vice President and Chief Financial Officer

So, Nathan, yeah, I think that we have seen -- and then it's been a little bit of a surprise as it relates to the equipment side. And so we come in to the quarter with some backlog. I think some of that is driven by some of these incentives that the government's put up as well. And as we indicated many of the doctors are encouraged by just the volumes returning. I would anticipate that equipment sales would tail off here a little bit as Amir indicated. We think that the strength of consumables will likely continue here in the quarter. And we're obviously monitoring very closely what's going on with elevated case counts, and the like associated with corona. And so, we think that that may have an earlier impact as it relates to equipment.

Nathan Rich -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

Your next question is from the line of Tycho Peterson with JPMorgan. Please go ahead.

Eleni Apostolatos -- JPMorgan -- Analyst

Thanks. This is Eleni on for Tycho. Congrats on the strong quarter. Following up on the backlog, the healthy backlog you exited the quarter with, I was just wondering you mentioned that it reflects both pent-up demand from closures but also an uptick in demand. Can you talk about sort of the backlog mix how it's looking sort of from pent-up demand versus what sort of new demand standpoint?

Amir Aghdaei -- President and Chief Executive Officer

Of course. It's really hard to put an exact figure to see how much of this is pent-up demand, but it for sure is playing a role in here. We've seen a strong demand for delayed ortho, resto, implant procedures. We're seeing customers following through on equipment orders. But we believe that -- and customers are telling us this is largely worked out. What we're seeing now is a stronger demand for new cases. Restorative endo procedures are generating new demand, customer taking opportunity to get ortho work done since they have more time discretionary income in many cases.

And going to a dental office is probably one of the safest places that people can go to. We see good momentum and improved patient mix. And given that all of that, we've seen the infection prevention is becoming part of our standard process of standard care. This mix that we are seeing less hygiene, just to give you a little bit of a feel, the hygiene is less than 3% of our business and there are a lot of less hygiene cases what we have seen in the past several quarters. More restorative, more implant, more ortho, it is putting the different mix in place for practitioners. They're getting more procedures done per visit.

Just to give you a little bit more feel also, this infection prevention we think that is going to continue. In Q4 alone that's more than 200 basis point of growth. We talked about the new product category. We talked about China growing high-single digit. And what we are seeing is the DSOs, the specialty part in DSOs is also double-digit growth. So we talk about putting all of that together, this industry is a resilient industry. It has recovered a lot faster. And I think, the incentives, the fact that dentists are going back to work, they're willing to be more flexible with extra hours, patients are feeling more comfortable to go back to offices, we are really encouraged with what we are seeing in here at least in the short-term. Those all the indices are pointing in a positive direction.

Eleni Apostolatos -- JPMorgan -- Analyst

That's helpful. Thank you. And then, just one follow-up, it's great to see you've executed on your priorities for Spark N1 and infection prevention driving over 300 basis points of growth just in 3Q, which is ahead of your guidance for the whole second half of this year. So just wondering, how should we think about the new target for you heading into 4Q? I appreciate sort of the color on sort of what you've been seeing in October. But could we be seeing sort of upside to this trend or how should we be thinking about it? Thank you.

Howard Yu -- Senior Vice President and Chief Financial Officer

So, yeah, and as you know, we're not providing any formal guidance here for Q4. But as Amir indicated, I mean, we have a very healthy backlog on the infection prevention at near-record levels in excess of $30 million coming into the quarter. And so, overall, we feel as though that 300 basis points of growth that we talked about from these products is still pretty consistent with what we'd say at this stage.

Operator

And your next question is from the line of John Kreger with William Blair. Please go ahead.

John Kreger -- William Blair -- Analyst

Hi. Thanks very much. Could you expand a bit more on your comments and what you're seeing in emerging markets outside of China? I think, you said you had not seen a rebound. What do you think it will take? And do we have a chance for sort of a pent-up demand rebound there over the next quarter or two? And do you think there's anything sort of structural that you guys need to do to improve trends there?

Amir Aghdaei -- President and Chief Executive Officer

Yes, of course. We outlined the mix of our business, which is about 70% in North America, Western Europe, another 10% in China. So, when we look at emerging market outside China, we are really not seeing a significant rebound. We are seeing a continuation of challenges as you are well aware of in India, Brazil, other places. So, a lot of that is really locally driven due to pandemic, it's market-driven. What we have been trying to do, we have -- consistent with other strategic approaches that we have taken for resources, capabilities around growth initiatives and trying to position ourselves to be in the best possible position to help the industry, help the practitioners to be ready as this market start taking momentum coming back to normal.

We've done significant number of trainings and we're going to continue to do that. We have done some realignment of resources to make sure that we are ready, but the COVID-19 really has reduced significantly the demand. Currency also has had some impact in these geographies around managing the inventory. But we feel really good about the outlook of this in the long run. We think given what our exposure is, I say, by some of the geographies, some of the segment majority of our decline has been because of that, but it was anticipated. We're working through them. We want to make sure that we are using this time period to set ourselves up for a much better performance as we go forward.

So what we're doing directly is changing our approach, training, educating, trying to help the industry practitioners in those environments to be prepared to continue to doing the emergency work and be ready for the future as we move forward.

John Kreger -- William Blair -- Analyst

That's helpful. Thanks. And can you remind us where you stand with the rollout of Spark beyond the U.S.?

Amir Aghdaei -- President and Chief Executive Officer

Of course. So, we have approval in China both from a clinical as well as manufacturing. So that has taken place. In Australia, we started the process in there available in North America. And very thoughtfully in Europe now, we are ramping that up in Europe working with -- similar to the process that we followed in the U.S., start it with a small group, bringing them up to speed, train them make sure that they're in a good place and then add to that as we go forward.

So our goal is to continue to follow that process in Europe and then selectively go after emerging market that have the highest potential over time. As mentioned before, we have the capacity that we need, the sales team is prepared, the training program has really proven that works. And we're going to continue to expand that throughout Q4 as well as in 2021 in different geographies.

John Kreger -- William Blair -- Analyst

Great. Thank you.

Operator

And your next question is from the line of Jason Bednar with Piper Sandler. Please go ahead.

Jason Bednar -- Piper Sandler -- Analyst

Hi. Good afternoon. Amir or Howard, I wanted to start maybe in orthodontics. Just curious maybe if you could unpack that upper-single digit bracket and wire growth you talked about in the quarter. Just any sense how much of that was your core business versus share gains that may have stemmed from a competitor exiting the market?

Amir Aghdaei -- President and Chief Executive Officer

A good part of it is our core business. We think that there are opportunities in there and we are -- there is overlap between what we offer versus the customers that now they have options. We are offering that to them. We're working with those customers that they are still interested. But a large part of that, I would say, our core customers have seen demand rising and continue to rise. And we continue in order to serve our own customers, it's probably too early to really any kind of share gain because of that transition. But we're watching it very carefully and we're working with customers and in local geographies to see what the implication look like.

Jason Bednar -- Piper Sandler -- Analyst

Okay. That's helpful. Thanks, Amir. And then, maybe for the second question. I mean, it certainly sounds like the discretionary hire and part of the dental market is performing better right now. We're seeing that in your numbers and others. Hearing about greater treatment acceptance rates from patients. But do we at all need to be worried about risk that those slower hygiene visits that you mentioned and slower diagnostic volumes eventually has a follow-through effect that weighs on that higher end work over coming quarters? Thanks so much.

Amir Aghdaei -- President and Chief Executive Officer

Of course. I understand the question, but we really haven't seen any of that to become reality. We work with many of our customers, DSOs, individual practitioners, universities. So far, we haven't seen anything that says, this would change over time. And if anything, we have seen a little bit of opposite of that that many patients still need care with all the new emerging issues likely mitigated a positive mix toward more of a restorative endo implants over time. It's still pretty early in the quarter.

Going forward, we see a situation when appointment will continue to be filled with more of cases that people want to take care of new patients that they come in managing pain obviously top of the priority, but also continue with the treatments that they have started. I mentioned before, the hygiene has -- continues to be a challenge, but our exposure to that has been really low less than 3% of our revenue.

We think that over time this actually provides opportunity for practitioners to see a lot of cases that were supposed to happen during that time to come back. So, 40% of the U.S. doctor revenues comes from hygiene. And in a normal times, this is -- we talk about pent-up demand. This would be a great opportunity to see that picking up and that has implication in equipment and consumable for us over time, even though procedure itself would have a limited impact in our revenue.

Operator

Okay. And your final question is from the line of Erin Wright with Credit Suisse. Please go ahead.

Erin Wright -- Credit Suisse -- Analyst

Great. Thanks for taking the question here. We've been hearing more about the greater adoption of digital dentistry concept in the COVID world. And can you remind us on what you're seeing in terms of traction there? And on that front, I'm curious where does your intraoral scanning strategy stand now? Thanks.

Amir Aghdaei -- President and Chief Executive Officer

Yeah, yeah. So this is a really important element here. Dentists are looking for options to get their practices a lot more efficient. So what we have been doing on the digital side and I answer the iOS in a second. A lot of training and education is online and it's really effective. We have trained over 250,000 customers this year. Combination of what we have done with the digital imaging, the DTX, we have really put an end-to-end workflow integrated management in place that goes from diagnostic to planning to execution, feel really good about it. Nobel is almost a leader in digital treatment same-day impact X-Nav, DTX placing as well as a whole lot of software capabilities that we have around our -- this is a differentiator specifically around Spark and around our ortho business.

We -- our strategy really hasn't changed about scanner. We want to own the point of entry on every dental treatment. And we want to give people options to have a full portfolio of a 3D, 2D, iOS, DTX to realize this strategy. We do have partnership and we have links built between X500 and soon with 3Shape in order to make sure that the rest of the portfolio work together very nicely. And we are offering those attractive solutions both through direct with our ortho and implant sales force as well as through our partners. We want to have a workflow that is competitive across playing field.

In the long-term, being an iOS manufacturer is still a priority for us, but we have been able to really solve that problem through partnership and level the playing field in here and make sure that our customers get what they need, solve the technical and clinical issues first.

Erin Wright -- Credit Suisse -- Analyst

That makes sense. And then, on the initial days of the N1 launch here, I guess how are you thinking about the competitive positioning now of N1 in the market particularly compared to both existing offerings as well as upcoming competitive launches? Where are you thinking that will shake out and then also when do you think it will more meaningfully contribute to top-line growth? Thanks.

Amir Aghdaei -- President and Chief Executive Officer

Yes. So, our current portfolio is a very competitive portfolio as it stands today. We think N1 is a truly differentiator. It's a revolutionary implant process from what we have heard, from what we are seeing everybody who's using it telling us that I think it's going to be a really revolutionary approach changing the model going forward. But I also want to make sure that we're not building our overall strategy just based on one product. We have significant presence in this space. We have been improving our operational and commercial execution. We have improved our customer experience, quality delivery and we're going to continue to do that. We are doing significant number of training, helping us doing marketing of these products and our overall portfolio. We're going to continue to add additional abutment prosthetic option in order to make sure that we have a broader rollout.

As mentioned before, our intention is to make sure that Nobel implant business is growing mid-single digit over time. All the activities that we are doing really puts us in a place that after a long time that we haven't had a new product position us well in order to accomplish that objective.

Erin Wright -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

And there are no further questions at this time. I would like to turn the call back to management for closing remarks.

John Bedford -- Vice President, Investor Relations

Thanks Angela. Appreciate everyone's time on the call. We'll be around for questions for the remainder of the day.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

John Bedford -- Vice President, Investor Relations

Howard Yu -- Senior Vice President and Chief Financial Officer

Amir Aghdaei -- President and Chief Executive Officer

Jeff Johnson -- Robert W. Baird -- Analyst

Elizabeth Anderson -- Evercore ISI -- Analyst

Jon Block -- Stifel -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

Eleni Apostolatos -- JPMorgan -- Analyst

John Kreger -- William Blair -- Analyst

Jason Bednar -- Piper Sandler -- Analyst

Erin Wright -- Credit Suisse -- Analyst

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