ENVISTA : Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with other information, including our
Condensed Consolidated and Combined Financial Statements and related notes
included in Part I, Item 1, Financial Information, of this Quarterly Report on
Form 10-Q, our consolidated and combined financial statements appearing in our
Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019
10-K"), and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form
10-Q. Unless the context otherwise requires, all references herein to the
"Company," "we," "us" or "our," or similar terms, refer to Envista Holdings
Corporation and its consolidated subsidiaries.

Certain statements included or incorporated by reference in this Quarterly
Report are "forward-looking statements" within the meaning of the U.S. federal
securities laws. All statements other than historical factual information are
forward-looking statements, including without limitation statements regarding:
the potential impacts of the COVID-19 pandemic on our business, financial
condition, and results of operations; projections of revenue, expenses, profit,
profit margins, tax rates, tax provisions, cash flows, pension and benefit
obligations and funding requirements, our liquidity position or other projected
financial measures; management's plans and strategies for future operations,
including statements relating to anticipated operating performance, cost
reductions, restructuring activities, new product and service developments,
competitive strengths or market position, acquisitions and the integration
thereof, divestitures, spin-offs, split-offs or other distributions, strategic
opportunities, securities offerings, stock repurchases, dividends and executive
compensation; growth, declines and other trends in markets we sell into; future
regulatory approvals and the timing thereof; outstanding claims, legal
proceedings, tax audits and assessments and other contingent liabilities; future
foreign currency exchange rates and fluctuations in those rates; the anticipated
timing of any of the foregoing; assumptions underlying any of the foregoing; and
any other statements that address events or developments that Envista intends or
believes will or may occur in the future. Terminology such as "believe,"
"anticipate," "should," "could," "intend," "will," "plan," "expect," "estimate,"
"project," "target," "may," "possible," "potential," "forecast" and "positioned"
and similar references to future periods are intended to identify
forward-looking statements, although not all forward-looking statements are
accompanied by such words. Forward-looking statements are based on assumptions
and assessments made by our management in light of their experience and
perceptions of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate. These
forward-looking statements are subject to a number of risks and uncertainties,
including but not limited to, the following: the impact of the COVID-19
pandemic, the conditions in the global economy, the markets served by us and the
financial markets, developments and uncertainties in U.S. policy stemming from
the U.S. administration, such as changes in U.S. trade and tariff policies and
the reaction of other countries thereto, contractions or growth rates and
cyclicality of markets we serve, fluctuations in inventory of our distributors
and customers, loss of a key distributor, our relationships with and the
performance of our channel partners, competition, our ability to develop and
successfully market new products and services, the potential for improper
conduct by our employees, agents or business partners, our compliance with
applicable laws and regulations (including regulations relating to medical
devices and the health care industry), the results of our clinical trials and
perceptions thereof, penalties associated with any off-label marketing of our
products, modifications to our products that require new marketing clearances or
authorizations, our ability to effectively address cost reductions and other
changes in the health care industry, our ability to successfully identify and
consummate appropriate acquisitions and strategic investments, our ability to
integrate the businesses we acquire and achieve the anticipated benefits of such
acquisitions, contingent liabilities relating to acquisitions, investments and
divestitures, significant restrictions and/or potential liability based on tax
implications of transactions with Danaher, security breaches or other
disruptions of our information technology systems or violations of data privacy
laws, our ability to adequately protect our intellectual property, the impact of
our restructuring activities on our ability to grow, risks relating to potential
impairment of goodwill and other intangible assets, currency exchange rates, tax
audits and changes in our tax rate and income tax liabilities, changes in tax
laws applicable to multinational companies, litigation and other contingent
liabilities including intellectual property and environmental, health and safety
matters, our ability to implement and maintain effective internal control over
financial reporting, risks relating to product, service or software defects,
risks relating to product manufacturing, the impact of our debt obligations on
our operations and liquidity, commodity costs and surcharges, our ability to
adjust purchases and manufacturing capacity to reflect market conditions,
reliance on sole or limited sources of supply, the impact of regulation on
demand for our products and services, labor matters, international economic,
political, legal, compliance and business factors (including the impact of the
United Kingdom's decision to leave the EU), disruptions relating to war,
terrorism, man-made and natural disasters, public health issues and other
events, pension plan costs, our ability to attract, develop and retain talented
executives and other key employees, and other risks and uncertainties set forth
under "Item 1A. Risk Factors" in the 2019 10-K and this Quarterly Report on Form
10-Q.


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Forward-looking statements are not guarantees of future performance and actual
results may differ materially from the results, developments and business
decisions contemplated by our forward-looking statements. Accordingly, you
should not place undue reliance on any such forward-looking statements.
Forward-looking statements contained herein speak only as of the date of this
Quarterly Report. Except to the extent required by applicable law, we do not
assume any obligation to update or revise any forward-looking statement, whether
as a result of new information, future events and developments or otherwise.

BASIS OF PRESENTATION


The accompanying Condensed Consolidated and Combined Financial Statements
present our historical financial position, results of operations, changes in
equity and cash flows in accordance with accounting principles generally
accepted in the United States ("GAAP"). The Condensed Consolidated and Combined
Financial Statements for periods prior to the Separation were derived from
Danaher's consolidated financial statements and accounting records and prepared
in accordance with GAAP for the preparation of carved-out combined financial
statements. Through the date of the Separation, all revenues and costs as well
as assets and liabilities directly associated with our business have been
included in the Condensed Consolidated and Combined Financial Statements. Prior
to the Separation, our Condensed Consolidated and Combined Financial Statements
also included allocations of certain general, administrative, sales and
marketing expenses and cost of sales from Danaher's corporate office and from
other Danaher businesses to us and allocations of related assets, liabilities,
and Danaher's investment, as applicable. The allocations were determined on a
reasonable basis; however, the amounts are not necessarily representative of the
amounts that would have been reflected in the financial statements had we been
an entity that operated independently of Danaher during the applicable periods.
Related party allocations prior to the Separation, including the method for such
allocation, are discussed further in Note 22 to our Condensed Consolidated and
Combined Financial Statements. Following the Separation, our Condensed
Consolidated Financial Statements include our accounts and our wholly owned
subsidiaries and no longer include any allocations of expenses from Danaher to
us.

Our Condensed Consolidated and Combined Financial Statements may not be
indicative of our results had we been a separate stand-alone entity throughout
the periods presented, nor are the results stated herein indicative of what our
financial position, results of operations and cash flows may be in the future.

We have incurred and will continue to incur additional costs as a separate
public company. As a separate public company, our total costs related to such
support functions may differ from the costs that were historically allocated to
us from Danaher. These additional costs are primarily for the following:

• additional personnel costs, including salaries, benefits and potential

bonuses and/or stock-based compensation awards for staff additions to

replace support provided by Danaher that is not covered by the Transition

       Services Agreement; and


• corporate governance costs, including board of director compensation and

expenses, audit and other professional services fees, annual report and

proxy statement costs, SEC filing fees, transfer agent fees, consulting

and legal fees and stock exchange listing fees.

Certain factors could impact the nature and amount of these separate public
company costs, including the finalization of our staffing and infrastructure
needs.


OVERVIEW
General

We provide products that are used to diagnose, treat and prevent disease and
ailments of the teeth, gums and supporting bone, as well as to improve the
aesthetics of the human smile. With leading brand names, innovative technology
and significant market positions, we are a leading worldwide provider of a broad
range of dental implants, orthodontic appliances, general dental consumables,
equipment and services, and are dedicated to driving technological innovations
that help dental professionals improve clinical outcomes and enhance
productivity. Our research and development, manufacturing, sales, distribution,
service and administrative facilities are located in more than 30 countries
across North America, Asia, Europe, the Middle East and Latin America.


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During the three months ended April 3, 2020 and year ended December 31, 2019,
sales derived from customers outside of the United States were 55% and 56%,
respectively. As a global provider of dental consumables, equipment and
services, our operations are affected by worldwide, regional and
industry-specific economic and political factors. Given the broad range of
dental products, software and services provided and geographies served, we do
not use any indices other than general economic trends to predict our overall
outlook. Our individual businesses monitor key competitors and customers,
including to the extent possible their sales, to gauge relative performance and
the outlook for the future.

As a result of our geographic and product line diversity, we face a variety of
opportunities and challenges, including rapid technological development in most
of our served markets, the expansion and evolution of opportunities in emerging
markets, trends and costs associated with a global labor force, consolidation of
our competitors and increasing regulation. We operate in a highly competitive
business environment in most markets, and our long-term growth and profitability
will depend in particular on our ability to expand our business in emerging
geographies and emerging market segments, identify, consummate and integrate
appropriate acquisitions, develop innovative and differentiated new products and
services, expand and improve the effectiveness of our sales force, continue to
reduce costs and improve operating efficiency and quality and effectively
address the demands of an increasingly regulated global environment. We are
making investments to address the rapid pace of technological change in our
served markets and to globalize our manufacturing, research and development and
customer-facing resources (particularly in emerging markets and our dental
implant business) in order to be responsive to our customers throughout the
world and improve the efficiency of our operations.

We operate in two business segments: Specialty Products & Technologies and
Equipment & Consumables. Our Specialty Products & Technologies segment develops,
manufactures and markets dental implant systems, dental prosthetics and
associated treatment software and technologies, as well as orthodontic bracket
systems, aligners and lab products. Our Equipment & Consumables segment
develops, manufactures and markets dental equipment and supplies used in dental
offices, including digital imaging systems, software and other
visualization/magnification systems; handpieces and associated consumables;
treatment units and other dental practice equipment; endodontic systems and
related consumables; and restorative materials and instruments, rotary burs,
impression materials, bonding agents and cements and infection prevention
products.

Key Trends and Conditions Affecting Our Results of Operations


There have been no material changes to the key trends and conditions affecting
our results of operations that were disclosed in our 2019 10-K, other than the
impact of COVID-19.

The continuing global spread of COVID-19 has led to unprecedented restrictions
on, and disruptions in, business and personal activities, including as a result
of preventive and precautionary measures that we, our dental customers, other
businesses, our communities and governments are taking to mitigate the spread of
the virus. The impact of COVID-19 and measures to prevent its spread are
affecting our businesses in several ways as follows:

Employees and Customers


We value the safety of our employees and customers and have leveraged our
technological resources to institute work-from-home arrangements for most of our
employees and to continue interacting with our customers on a remote basis where
possible. We have implemented social distancing guidelines, staggered shifts and
more frequent disinfection processes for employees that need to be in
manufacturing locations, offices or interact with customers to help ensure their
safety. We have expanded the availability of our virtual training and education
for our customers. Our employees have donated thousands of masks and other
personal protective equipment to their local communities worldwide. In China, we
were one of the first to donate infection prevention products to the Wuhan
government and our Orascoptic business has donated eye protection to hundreds of
healthcare professionals in the United States. Metrex, our infection control and
prevention business, has been providing products to help our customers maintain
proper disinfection protocols.

Prioritization of Business Activities


In response to the COVID-19 pandemic, we have increased our investment in our
infection control and prevention business by doubling shipments of medical grade
disinfectant products and are further increasing our investment to expand
capacity by the end of June 2020.


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We continue transforming our portfolio by investing in our implant and clear
aligner products and also making investments in emerging markets. The cost
reduction initiatives we have taken and will continue to undertake in the
future, allow us to further invest in this growth strategy, which in turn we
believe should improve our margins.

We made significant progress on the regulatory approval of N1 and are on track
with our current timeline for availability in Europe in 2020. Our Nobel Biocare
business has obtained the EU Medical Device Regulation ("MDR") Quality
Management System certification and is one of the first in the dental industry
to do so. This is an important milestone for Nobel Biocare and shows that we are
on track in our efforts to achieve MDR certification for our full portfolio of
products.

Results of Operations

In response to COVID-19, many dental associations globally have recommended that
dental practices delay elective procedures and only perform emergency
procedures. These measures may remain in place for a significant period of time
in certain regions and are likely to continue to adversely affect our business,
results of operations and financial condition. There have been widespread
temporary closures of dental practices around the world due to the pandemic,
except to perform emergency procedures. As a result, our sales have been
significantly negatively impacted, which has led to a temporary reduction in our
manufacturing capacity as we have idled certain manufacturing facilities and
furloughed the employees that work at the idled facilities in response. In
addition, we have implemented various temporary cost reduction initiatives,
which have included employee furloughs throughout the Company, implementing pay
reductions, reducing discretionary spending, delaying capital expenditures and
eliminating all non-essential business travel. We have also accelerated and
increased our planned structural spending reduction programs that we believe
will be substantially completed by the end of 2020.

We expect the ultimate significance of the impact of these disruptions,
including the extent of their adverse impact on our financial and operational
results, to be dependent on the length of time that such disruptions continue
which will, in turn, depend on the currently unknowable duration of the COVID-19
pandemic and the impact of governmental regulations that are imposed in response
to the pandemic. Moreover, efforts to slow or prevent a recurrence of the spread
of the virus are likely to continue to curtail the operations of our customers
and their patients for an indeterminate period of time, impacting our operations
as purchasing decisions are delayed or lost, increasing logistical complexities
as a result of closed customer offices, sales and marketing efforts are
postponed, and manufacturing operations are curtailed to adjust to declining
sales.
Our businesses could also be impacted should the disruptions from COVID-19 lead
to changes in consumer behavior and spending and our business may be
particularly susceptible to these changes as a material portion of our products
may be viewed as discretionary purchases and therefore more susceptible to any
global or regional recession that may result from efforts to prevent or delay
the spread of the virus. Additionally, the COVID-19 impact on the capital
markets could affect our cost of borrowing and our ability to raise additional
capital. There are certain limitations on our ability to mitigate the adverse
financial impact of these items, including the fixed costs of our manufacturing
facilities. COVID-19 also makes it more challenging for management to estimate
future performance of our businesses, particularly over the near to medium term.

Our future results of operations and liquidity could be adversely impacted by
delays in payments of outstanding receivable amounts beyond normal payment
terms, supply chain disruptions and uncertain demand, and the impact of any
initiatives or programs that we may undertake to address financial and
operations challenges faced by our customers. The extent to which the COVID-19
pandemic may materially impact our financial condition, liquidity, or results of
operations is uncertain. We currently expect our results of operations for the
second quarter of 2020 to be most significantly impacted. However, because of
the dynamic nature of the crisis, we cannot accurately predict the extent or
duration of the impacts of the COVID-19 pandemic.

Liquidity


In March of 2020, we drew down $250 million, the full amount available under the
Revolving Credit Facility. On May 6, 2020, we entered into the Amendment that,
among other changes as described in Note 13 to our Condensed Consolidated and
Combined Financial Statements in this Quarterly Report on Form 10-Q, waives the
quarterly-tested leverage covenant and reduces the interest coverage ratio
through and including the first quarter of 2021. We believe this Amendment and
the proceeds from the Revolving Credit Facility provide us with the appropriate
level of flexibility to manage our operations. In future periods, the COVID-19
pandemic and its impact on the capital markets could impact our ability to
obtain future financing.


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As noted above, we are aligning our cost structure to the realities of the
current operating environment. In the short term, we are focusing on actions to
preserve liquidity by implementing pay cuts, furloughs and actively managing all
discretionary spending. We are also taking additional actions to improve the
long-term financial structure of the business.

Further, we plan to utilize certain provisions of the CARES Act enacted by the
U.S. Government to provide additional short-term liquidity, including relief
from employer payroll tax remittance, and we are evaluating other potential
income tax impacts of the CARES Act. We are also evaluating provisions of
similar legislation in other countries.

Acquisitions


Our growth strategy contemplates future acquisitions. Our operations and results
can be affected by the rate and extent to which appropriate acquisition
opportunities are available, acquired businesses are effectively integrated and
anticipated synergies or cost savings are achieved.

On January 21, 2020, we acquired all of the shares of Matricel for cash
consideration of approximately $45 million. Matricel, a German company, is a
provider of biomaterials used in dental applications and is part of our
Specialty Products and Technologies segment. For the three months ended April 3,
2020, Matricel's revenue and earnings were not material to our Condensed
Consolidated and Combined Statements of Operations.

Currency Exchange Rates


On a period-over-period basis, currency exchange rates negatively impacted
reported sales by approximately 1.5% for the three months ended April 3, 2020,
compared to the comparable period of 2019, primarily due to the strength of the
U.S. dollar against most major currencies. Any future strengthening of the U.S.
dollar against major currencies would adversely impact our sales and results of
operations for the remainder of the year, and any weakening of the U.S. dollar
against major currencies would positively impact our sales and results of
operations for the remainder of the year.

UK’s Referendum Decision to Exit the EU


In a referendum on June 23, 2016, voters approved for the United Kingdom ("UK")
to exit the European Union ("EU"). A withdrawal agreement negotiated by and
between the UK prime minister and the EU was ratified by the UK parliament in
December 2019. The UK exited the EU on January 31, 2020.  A transition period
began and business will remain as usual while the UK remains in the EU customs
union until December 31, 2020.  There is uncertainty as to what will occur after
the December 31st deadline and the nature of the UK's future relationship with
the EU is still unclear. We continue to monitor the status of Brexit and plan
for potential impacts. To mitigate the potential impact of Brexit on the import
of goods to the UK, we have adapted our supply chain and financial flows
accordingly, and will temporarily increase our level of inventory within the UK
if required. The ultimate impact of Brexit on our financial results is
uncertain. For additional information, refer to "Item 1A. Risk Factors-General
Risks" in our 2019 10-K.

Public Company Expenses

As a result of the Separation, we are subject to the Sarbanes-Oxley Act and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). We are now required to have additional procedures and practices
as a separate public company. As a result, we have incurred and will continue to
incur additional personnel and corporate governance costs, including internal
audit, investor relations, stock administration and regulatory compliance costs.

Envista Business Systems


Throughout this discussion, references to sales volume refer to the impact of
both price and unit sales and references to productivity improvements generally
refer to improved cost-efficiencies resulting from the ongoing application of
Envista Business Systems ("EBS"). We believe our deep-rooted commitment to EBS
helps drive our market leadership and differentiates us in the dental products
industry. EBS encompasses not only lean tools and processes, but also methods
for driving growth, innovation and leadership. Within the EBS framework, we
pursue a number of ongoing strategic initiatives relating to customer insight
generation, product development and commercialization, efficient sourcing, and
improvement in manufacturing and back-office support, all with a focus on
continually improving quality, delivery, cost, growth and innovation.


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Non-GAAP Measures


In this report, references to the non-GAAP measure of core sales (also referred
to as core revenues or sales/revenues from existing businesses) refer to sales
calculated according to U.S. GAAP, but excluding:

• sales from acquired businesses;

• sales from discontinued products; and

• the impact of currency translation.

References to sales or operating profit attributable to acquisitions or acquired
businesses refer to sales or operating profit, as applicable, from acquired
businesses recorded prior to the first anniversary of the acquisition.


Sales from discontinued products includes major brands or products that we have
made the decision to discontinue as part of a portfolio restructuring.
Discontinued brands or products consist of those which we (1) are no longer
manufacturing, (2) are no longer investing in the research or development of,
and (3) expect to discontinue all significant sales of 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 sales attributable to currency translation is calculated as the
difference between:

• the period-to-period change in sales; and

• the period-to-period change in sales after applying current period foreign

exchange rates to the prior year period.




Core sales growth should be considered in addition to, and not as a replacement
for or superior to, sales, and may not be comparable to similarly titled
measures reported by other companies. We believe that reporting the non-GAAP
financial measure of core sales growth provides useful information to investors
by helping identify underlying growth trends in our on-going business and
facilitating comparisons of our sales performance with our performance in prior
and future periods and to our peers. We also use core sales growth to measure
our operating and financial performance. We exclude the effect of currency
translation from core sales because currency translation is not under our
control, is subject to volatility and can obscure underlying business trends.


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RESULTS OF OPERATIONS

As discussed above, the COVID-19 pandemic has adversely impacted our overall
results of operations for the three months ended April 3, 2020.


                                                Three Months Ended
($ in millions)                        April 3, 2020          March 29, 2019      $ Variance  % Change
Sales                               $   547.2   100.0  %   $    659.7   100.0 %      (112.5 )  (17.1 )%
Cost of sales                           268.8    49.1  %        296.6    45.0 %       (27.8 )   (9.4 )%
Gross profit                            278.4    50.9  %        363.1    55.0 %       (84.7 )  (23.3 )%
Operating costs:
SG&A expenses                           268.7    49.1  %        274.9    41.7 %        (6.2 )   (2.3 )%
R&D expenses                             34.7     6.3  %         43.3     6.6 %        (8.6 )  (19.9 )%
Operating (loss) profit                 (25.0 )  (4.6 )%         44.9     6.8 %       (69.9 ) (155.7 )%
Nonoperating income (expense), net
Other income                              0.1       -  %          0.1       - %           -       NM
Interest expense, net                    (3.3 )  (0.6 )%            -       - %        (3.3 )     NM
(Loss) earnings before income taxes     (28.2 )  (5.2 )%         45.0     6.8 %       (73.2 ) (162.7 )%
Income tax (benefit) expense            (11.0 )  (2.0 )%          7.1     1.1 %       (18.1 ) (254.9 )%
Net (loss) income                   $   (17.2 )  (3.1 )%   $     37.9

5.7 % (55.1 ) (145.4 )%

Effective tax rate                       39.0 %                  15.8 %



SALES

                                                                   % Change Three
                                                                 Month Period Ended
                                                                 April 3, 2020 vs.
                                                                  Comparable 2019
                                                                       Period
Total sales growth (GAAP)                                                  (17.1 )%
Less the impact of:
Acquisitions                                                                (0.2 )%
Discontinued products                                                        0.9  %
Currency exchange rates                                                      1.8  %
Core sales growth (non-GAAP)                                               

(14.6 )%




Through the first two months of the quarter, we had core sales growth of
mid-single digits, however, as a result of the COVID-19 pandemic, core sales
growth for the three months ended April 3, 2020, decreased 14.6%, compared to
the comparable period of 2019. We estimate that our core sales decreased by
approximately 16.0% due to the impact of the COVID-19 pandemic. As a result of
the COVID-19 pandemic, there have been widespread temporary closures of dental
practices around the world, except to perform emergency procedures, impacting
our sales. Geographically, the decrease in core sales growth was primarily due
to lower core sales in Western Europe, North America and China during the three
months ended April 3, 2020 as compared to the comparable period of 2019. Core
sales in developed markets decreased in the low teens during the three months
ended April 3, 2020, as compared to the comparable period of 2019, primarily due
to declines in Western Europe and North America. Core sales in emerging markets
decreased in the low twenties during the three months ended April 3, 2020, as
compared to the comparable period of 2019, led primarily due to a decline in
China, the first country impacted by COVID-19. Price negatively impacted sales
growth by 0.3% on a period-over-period basis in the three months ended April 3,
2020 and is reflected as a component of core sales growth.


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COST OF SALES AND GROSS PROFIT


The decrease in cost of sales during the three months ended April 3, 2020, as
compared to the comparable period in 2019 was primarily due to lower sales as a
result of the COVID-19 pandemic and the impact of foreign currency exchange
rates. As a result of an expected decrease in overall demand in the second
quarter of 2020, we expect that our production facilities will run at less than
normal capacity. Accordingly, certain labor and fixed production overhead costs
will be expensed as incurred, significantly reducing our gross profit margin.

The decrease in gross profit margin during the three months ended April 3, 2020,
as compared to the comparable period in 2019 was due primarily to lower sales as
a result of the COVID-19 pandemic, an unfavorable sales mix and the impact of
foreign currency exchange rates.

OPERATING EXPENSES


The increase in SG&A expenses as a percentage of sales for the three months
ended April 3, 2020, as compared to the comparable period of 2019 was primarily
due to lower sales, restructuring and productivity improvement expenses, and
incremental public company costs, partially offset by lower sales and marketing
spend and incremental period-over-period savings associated with restructuring
and productivity improvement actions taken in prior periods.

The decrease in R&D expenses as a percentage of sales for the three months ended
April 3, 2020, as compared to the comparable period of 2019 was primarily due to
a decrease in spending on product development initiatives, partially offset by
lower sales.

OPERATING (LOSS) PROFIT

Operating loss margin was 4.6% for the three months ended April 3, 2020, as
compared to an operating profit margin of 6.8% for the comparable period of
2019. The following factors impacted period-over-period operating profit margin
comparisons:

• Lower sales primarily due to the impact of the COVID-19 pandemic, an

unfavorable sales mix, higher restructuring and productivity improvement

expenses, incremental corporate costs and the impact of foreign currency

       exchange rates, partially offset by lower sales and marketing spend, and
       incremental period-over-period savings associated with restructuring and
       productivity improvement actions taken in prior periods.


NONOPERATING INCOME (EXPENSE), NET


The Company disaggregates the service cost component of net periodic benefit
costs from the other components of net periodic benefit costs and presents the
other components of net periodic benefit costs in nonoperating income (expense),
net. The other components of net periodic benefit costs included in nonoperating
income (expense), were $0.1 million for both the three months ended April 3,
2020 and March 29, 2019.

INTEREST EXPENSE, NET

The increase in interest expense for the three months ended April 3, 2020, as
compared to the comparable period in 2019, is due to our outstanding debt of
$1.5 billion. In conjunction with the Separation, we entered into the Credit
Agreement, the proceeds of which were used to pay Danaher consideration for the
transfer of the Dental business to us. No borrowings existed during the three
months ended March 29, 2019. For a discussion of our outstanding indebtedness,
refer to Note 13 to our Condensed Consolidated and Combined Financial Statements
in this Quarterly Report on Form 10-Q.


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INCOME TAXES


Our effective tax rate of 39.0% and 15.8% for the three months ended April 3,
2020 and March 29, 2019, respectively, differ from the U.S. federal statutory
rate of 21.0%, primarily due to our geographical mix of taxable earnings,
including the impact of COVID-19 in the three months ended April 3, 2020.

Our effective tax rate of 39.0% for three months ended April 3, 2020, was higher
compared to the comparable period in 2019 due to a change in our geographical
mix of earnings primarily due to the impact of the pretax loss as a result of
COVID-19 in the three months ended April 3, 2020 and a reduction in certain
discrete tax benefits.

COMPREHENSIVE (LOSS) INCOME


For the three months ended April 3, 2020, comprehensive loss was $63 million as
compared to comprehensive income of $0.2 million for the comparable period of
2019. The decrease was primarily due to a net loss and unrealized losses related
to our interest rate swap derivative contracts.

RESULTS OF OPERATIONS – BUSINESS SEGMENTS

Sales by business segment were as follows ($ in millions):


                                           Three Months Ended
                                   April 3, 2020      March 29, 2019
Specialty Products & Technologies $    272.6         $          348.8
Equipment & Consumables                274.6                    310.9
Total                             $    547.2         $          659.7


SPECIALTY PRODUCTS & TECHNOLOGIES


Our Specialty Products & Technologies segment develops, manufactures and markets
dental implant systems, dental prosthetics and associated treatment software and
technologies, as well as orthodontic bracket systems, aligners and lab products.

Specialty Products & Technologies Selected Financial Data


                                         Three Months Ended
($ in millions)                   April 3, 2020     March 29, 2019
Sales                            $      272.6$       348.8
Operating profit                 $        7.8$        66.1
Operating profit as a % of sales          2.9 %             19.0 %



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Core Sales Growth

                                                                   % Change Three
                                                                    Month Period
                                                                   Ended April 3,
                                                                      2020 vs.
                                                                  Comparable 2019
                                                                       Period
Total sales growth (GAAP)                                                 (21.8 )%
Less the impact of:
Acquisitions                                                               (0.4 )%
Discontinued products                                                       1.3  %
Currency exchange rates                                                     1.5  %
Core sales growth (non-GAAP)                                              (19.4 )%



We estimate that our core sales decreased by approximately 22.0% due to the
impact of the COVID-19 pandemic. As a result of the COVID-19 pandemic, there
have been widespread temporary closures of dental practices around the world,
except to perform emergency procedures, impacting our sales. Geographically, the
decrease in core sales growth was primarily due to lower core sales in Western
Europe, North America and China. Core sales decreased for implant systems and
orthodontic products in most of the markets we serve as result of the COVID-19
pandemic. Price in the segment negatively impacted sales growth by 0.5% on a
period-over-period basis in the three months ended April 3, 2020 and is
reflected as a component of core sales growth.

Operating profit margin decreased 1,610 basis points during the three months
ended April 3, 2020, as compared to the comparable period of 2019. The following
factors impacted period-over-period operating profit margin comparisons:

• Lower sales with an unfavorable sales mix, restructuring and productivity

improvement expenses and the impact of foreign currency exchange rates,

partially offset by lower sales and marketing spend, and incremental

period over period savings associated with restructuring and productivity

improvement actions taken in prior periods.

EQUIPMENT & CONSUMABLES


Our Equipment & Consumables segment develops, manufactures and markets dental
equipment and supplies used in dental offices, including digital imaging
systems, software and other visualization/magnification systems; handpieces and
associated consumables; treatment units and other dental practice equipment;
endodontic systems and related consumables; and restorative materials and
instruments, rotary burs, impression materials, bonding agents and cements and
infection prevention products.

Equipment & Consumables Selected Financial Data


                                         Three Months Ended
($ in millions)                   April 3, 2020     March 29, 2019
Sales                            $      274.6$      310.9
Operating profit                 $      (19.3 )$      (12.2 )
Operating profit as a % of sales         (7.0 )%           (3.9 )%




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Core Sales Growth

                                                                   % Change Three
                                                                    Month Period
                                                                   Ended April 3,
                                                                      2020 vs.
                                                                  Comparable 2019
                                                                       Period
Total sales growth (GAAP)                                                 (11.7 )%
Less the impact of:
Discontinued products                                                       0.4  %
Currency exchange rates                                                     2.1  %
Core sales growth (non-GAAP)                                               (9.2 )%



We estimate that our core sales decreased by approximately 10.0% due to the
impact of the COVID-19 pandemic. As a result of the COVID-19 pandemic, there
have been widespread temporary closures of dental practices around the world,
except to perform emergency procedures, impacting our sales. Geographically, the
decrease in core sales growth was primarily due to lower core sales in Western
Europe, North America and China. Core sales of equipment and traditional
consumables decreased in most of the markets we serve as a result of the
COVID-19 pandemic. Price in the segment was flat on a period-over-period basis
in the three months ended April 3, 2020 and is reflected as a component of core
sales growth.

Operating profit margin decreased 310 basis points during the three months ended
April 3, 2020 as compared to the comparable period in 2019. The following
factors impacted year-over-year operating profit margin comparisons:

• Lower sales with an unfavorable sales mix, restructuring and productivity

improvement expenses and the impact of foreign currency exchange rates,

       partially offset by lower sales and marketing and R&D spend, and
       incremental period over period savings associated with restructuring and
       productivity improvement actions taken in prior periods.


INFLATION

The effect of inflation on our sales and net (loss) income was not significant
for the three months ended April 3, 2020 and March 29, 2019.

LIQUIDITY AND CAPITAL RESOURCES


Before the Separation, we were dependent upon Danaher for all of our working
capital and financing requirements under Danaher's centralized approach to cash
management and financing of its operations. Our financial transactions were
accounted for through our former parent investment, net account. Accordingly,
none of Danaher's cash, cash equivalents or debt has been assigned to us for the
periods prior to the Separation.

As a result of the Separation, we no longer participate in Danaher’s cash
management and financing operations. We assess our liquidity in terms of our
ability to generate cash to fund our operating and investing activities.


We depend on cash flow from operations, cash on hand and funds available under
our Revolving Credit Facility, which was fully drawn down on in March 2020, and
in the future, we may depend on other debt financings and equity financings to
finance our acquisition strategy, working capital needs and capital
expenditures. While we expect to experience reduced cash flow from operations as
a result of decreased revenues during the current operating environment, we
believe that these sources of funds will be adequate to fund debt service
requirements and provide cash, as required, to support our strategy, ongoing
operations, capital expenditures, lease obligations and working capital for at
least the next 12 months.


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If our cash flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay additional
acquisitions, future investments and capital expenditures, seek additional
capital, restructure or refinance our indebtedness, or sell assets. However, we
cannot ensure that we will be able to obtain future debt or equity financings
adequate for our future cash requirements on commercially reasonable terms or at
all, which may be exacerbated due to the impact of the COVID-19 pandemic on the
debt and equity markets. Significant delays in our ability to finance
acquisitions or capital expenditures may materially and adversely affect our
future sales prospects. In addition, we cannot ensure that we will be able to
refinance any of our indebtedness on commercially reasonable terms or at all.
Our ability to restructure or refinance our debt will depend on the condition of
the capital markets and our financial condition at such time. The Credit
Agreement also restricts our ability to enter into certain asset sales
transactions. We may not be able to consummate those asset sales to raise
capital or sell assets at prices that we believe are fair, and proceeds that we
do receive may not be adequate to meet any debt service obligations then due.

Following is an overview of our cash flows and liquidity:

© Edgar Online, source Glimpses



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