My name is Chelsea, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's first quarter 2022 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, press star and then one on your keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. I will now turn the call over to Mr. Stephen Keller, Vice President of Investor Relations of Envista Holdings. Mr. Keller, you may begin your conference call.
Good afternoon 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 want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliation of other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the investor section of our website, www.envistaco.com. The audio portion of this call will be archived on the investor section of our website later today under the headings Events and Presentations. It will remain archived until our next quarterly call. As announced on January 3rd, 2022, we have closed the divestiture of the KaVo treatment unit and instrument business.
For the first quarter of 2022 and the full year of 2021, the results of this business are reflected as discontinued operations in our financial statements as required by generally accepted accounting principles. All references in these remarks and accompanying presentations to earnings, revenues and other company-specific financial metrics relate only to the continuing operation of Envista business, except for cash flow measures. 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, references in these remarks to company-specific financial metrics relate to the first quarter of 2022, and the references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices that have applications submitted and pending certain regulatory approvals or available only in certain markets.
During the call, we will make forward-looking statements within the meaning of the federal securities law, including statements regarding events or developments that we believe, anticipate 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.
Thank you, Stephen, and welcome everyone to Envista's Q1 2022 earnings call. Despite a challenging macro environment with localized COVID lockdowns, numerous supply chain disruptions, meaningful inflation and a challenging geopolitical environment, I'm pleased to report that Envista was able to deliver a strong first quarter marked by mid-single-digit core growth and better than expected adjusted EBITDA margins. Our performance in the quarter is a testament to the team's passion, dedication and focus on execution. I'm proud of our team's effort and believe that we are strategically differentiated and have a proven track record of execution. By partnering with professionals to improve patients' lives, we are well positioned to continue to outperform the market.
Before I turn it to Howard to discuss our first quarter results in more detail, I want to provide more color on our progress toward our long-term priorities of accelerating growth, expanding our operating margins, and transforming our portfolio. At Envista, we see significant opportunity to improve patients' quality of life by digitizing, personalizing, and democratizing oral care. On March thirty-first, we hosted our inaugural Envista Summit, where we brought together the legacy Ormco Forum and Nobel Biocare Symposium with a brand-new technology track to demonstrate our clinical workflow capabilities that improve the productivity and predictability of clinical procedures. With over 1,700 attendees, both in person and virtually, this event allowed us to articulate our vision for the future of dentistry while highlighting the combined strength and scale of the Envista portfolio.
We provided high-impact training in orthodontics, implantology and digital workflows and introduced clinicians to the latest advancements in dental care that will transform dentistry over the coming decade. At the summit, we also hosted our first Investor Day as a public company, where we outlined our long-term plans for accelerating growth to high single digits while continuing to drive margin expansion. We shared our vision and how we will create value for patients, customers, employees and shareholders, and further demonstrated how Envista is strategically differentiated and has a proven track record of execution. Our Q1 performance was another step in delivering on our long-term commitments. In Q1, we saw continued strength in our orthodontic business with solid mid-single digit core growth in brackets and wires and over 100% core growth in Spark clear aligners versus Q1 2021.
Our focus on providing orthodontic professionals with a portfolio of treatment options differentiates us and supports our long-term core growth objectives. We're ramping up investments in Spark and are also focused on driving innovation in our core brackets and wires business. Sales of Damon Ultima continue to accelerate, and orthodontists appreciate the faster and more precise finishing it offers during treatment. Our implant-based tooth replacement solution grew high single digits despite the temporary lockdowns in major China cities that significantly impacted the last week of the quarter. Our growth was driven by continued strength in our core premium implant business in Europe and North America, as well as accelerating growth in the regeneratives and prosthetics. In the first quarter of 2022, we trained our first cohort of N1 ambassadors in North America.
We're excited about the long-term prospects of N1's biologically-driven treatment protocol, which we believe will shorten time to teeth for patients while improving the surgical and healing experience. In our equipment and consumable segment, we saw accelerated performance in our restorative business and continued strength in imaging and diagnostics. In March, we obtained FDA clearance for intelligent mandibular nerve tracing feature in our DTX Studio Clinic platform. We continue to invest in DTX to add assisted intelligence or AI functionality that helps reduce the time clinicians spend on time-consuming tasks while simultaneously helping prevent complications and enabling increased focus on patient. Our development partnership with Pacific Dental Services, PDS, announced in Q1 2022, was created to harness the power of AI in support of clinical image analysis across the dental market. Independently, Envista and PDS have been investing in industry-leading work on AI support of clinical imaging.
Together, we will deploy Envista's DTX Studio Clinic software platform throughout all PDS-supported practices to bring the benefits of AI-supported image sorting and interpretations to PDS-supported clinicians. Envista and PDS aim to harness the power of data and machine learning to transform the ease with which dentists use clinical imagery to diagnose, plan, and enhance patient care. In addition to driving growth and investing into our strategic initiatives, we remain intensely focused on expanding our margins. In Q1 2022, we achieved an adjusted EBITDA margin of 19.7%. This represents 120 basis points of sequential margin improvement versus Q4 2021. Envista Business System, EBS, and its focus on continuous improvement drives our execution. It helps us to offset and countermeasure the impacts of inflation and supply chain challenges while supporting our ability to invest for growth.
In the quarter, we used EBS and our daily management tools to mitigate many of the significant supply chain disruptions, delay and reduce the impact of inflation, and deploy appropriate pricing actions. While we are proud of the work we have done today, it is important to note that inflation, supply chain issues, and geopolitical challenges are persistent, and we expect to face continued headwinds in Q2 and second half of the year. We are focused on transforming our portfolio to higher growth and higher margin businesses within dental. On April 20th, we closed the acquisition of the Carestream Dental's intraoral scanner IOS business. This acquisition is an important step in our journey of digitizing, personalizing, and democratizing dental care.
IOS scans are a critical first step to many high-value specialty dental procedures, including implant surgical guides, prosthetics, and clear aligner treatments. The newly branded line of DEXIS IOS scanners is an attractive entry point into this segment. This business comes with a proven suite of scanning solutions that include both a proficient hardware platform and powerful software capabilities. It is a substantial global business with significant growth upside over the long run. We're confident that we can accelerate growth by increasing customer reach and expanding in under-penetrated geographies and customer segments. As we have discussed before, this business comes with a strong R&D team and a promising development pipeline that will further accelerate dental digitization for years to come. Now that we have welcomed the new IOS team to Envista, we're focused on driving growth and accelerating performance.
We will be making significant investments to further integrate this business into Envista while leveraging EBS to improve its operational capabilities and set it up for long-term double-digit growth. While we are excited about the strategic moves that we have made today, we continue to see opportunities to further improve our portfolio. We're committed to pursuing an aggressive but disciplined approach to capital deployment. We have a strong balance sheet and have both the financial capability and organizational bandwidth to make additional acquisitions. We continue to utilize our EBS-driven M&A approach to manage proactively cultivating new opportunities. I will now turn the call over to Howard to go through our first quarter financials and provide more details on our segment performance.
Thanks, Amir. Before we begin, I'd like to remind you that our first quarter results are compared against prior year based on continuing operations, reflecting the sale of our KaVo treatment unit and instruments business. First quarter sales across all our businesses increased 3.1% to $631.4 million. Reported sales were negatively impacted 2.3% due to foreign currency exchange rate. Our core sales growth was 5.4% compared to the first quarter of 2021. Our year-over-year growth reflects solid performance across most of our portfolio, which was partially offset by temporary weakness in our infection prevention business, as well as the COVID-related lockdown that occurred in Shanghai during the last week of the quarter.
The catalyst for growth in Q1 was our specialty products and technology segment, which was up more than 11% versus Q1 of 2021. On a consolidated basis, Western Europe grew 17.6%, while North America increased 2.4%, dragged down by greater exposure to infection prevention. Overall, emerging markets outside of China continued to expand from pandemic lows, growing 15.6%. China was down 14.3% versus prior year, driven by the zero COVID policy that led to localized lockdowns in Shanghai and other regions across China. Our primary warehouse in China has been affected by the lockdown in Shanghai, and this has impacted our ability to ship product locally.
We have been able to continue to serve our clinicians and patients outside of Shanghai by leveraging our distribution partners across China to provide product and maintain share in terms of sellout. Our first quarter adjusted gross margins from continuing operations was 59.2%, increasing by 20 basis points compared to the prior year due to higher volumes, favorable geographic mix, and productivity initiatives across our portfolio. The adjusted Q1 2022 EBITDA margin was 19.7%, which is approximately 185 basis points lower than Q1 of 2021. As previously discussed, in Q1 2022, we continued to invest in our long-term innovation while increasing spend on travel and in-person customer-facing activities, including our first Envista Summit in the last week of the quarter.
Our adjusted EBITDA was also negatively impacted by approximately $2 million-$3 million in stranding costs related to the sale of the KaVo treatment unit and instruments business. We began addressing the estimated greater than $10 million of annualized stranding costs in Q1. Our first quarter adjusted EPS was $0.47 from continuing operations compared to $0.49 in the comparable period of the prior year. In our specialty products and technology segment, our core revenue increased by 11.2% compared to the first quarter of 2021, driven by strong growth in implants and continued strong growth from Spark. In the first quarter, our orthodontic business grew 18.7%, with our core bracket and wires business growing mid-single digits and Spark continuing to accelerate. We remain very confident in our Spark business and believe that we have tremendous opportunity to drive long-term growth.
Therefore, we continue to accelerate investment to capitalize on this important opportunity. Our implant-based tooth replacement business grew high single digits in Q1 of 2022 versus Q1 of 2021, driven by strong growth in developed markets and most emerging markets, partially offset by the impact of the localized lockdowns in China. In addition to strong growth in core implants, our prosthetics and regenerative business continued to accelerate. Our specialty products and technology segment adjusted operating profit finished at 22.2% in the first quarter. This is down 420 basis points from Q1 of 2021, primarily due to the significant increase in investment to drive long-term growth, as well as the increase in customer-facing activities we participated in the quarter. Sequentially, we drove 10 basis points of margin improvement versus Q4 of 2021 in this segment.
Our first quarter equipment and consumable segment core sales from continuing operations decreased by 3.3% compared to Q1 of 2021. Strong demand and solid execution in our Kerr restorative business drove results higher in the segment, with core growth of greater than 10% compared to the first quarter of 2021. Our imaging business also performed well in Q1, delivering mid-single-digit core growth versus 2021. This is led by strong performance in our developed markets. As expected, sales of our infection prevention solutions continued to decline from peak pandemic demand. Despite the lower Q1 sales, inventory sellout trends reported by our distribution partners indicate that we're gaining market share in our core dental market. We further believe that sell-in and sellout are more balanced and that this business should return to growth in the second half of 2022.
Long term, we continue to expect this business to grow mid-single digits. Equipment and consumables adjusted operating profit margin was 20.7% from continuing operations in the first quarter of 2022 versus 21.4% in Q1 of 2021. Solid margin improvement in imaging and restorative solutions was offset by the slowdown in infection prevention. Further, we experienced some inflation related to the chemical commodities that impacted our infection prevention business. The segment was also burdened with approximately $2 million-$3 million of stranded costs in the quarter related to the sale of the KaVo treatment and instruments business. With the sale of the KaVo treatment and instrument business and the addition of the newly acquired IOS business, we are confident that our equipment and consumables business will grow faster and be more profitable as we move forward.
In the first quarter, we consumed $16.3 million of free cash flow and ended the quarter with more than $1 billion in cash, enabling us to close the Carestream Dental IOS acquisition with cash on hand. Historically, Q1 is our weakest quarter for free cash generation, owing to the seasonality of supplier payments and impact of annual incentive plans. Our working capital increased sequentially as we continue to proactively manage our suppliers to ensure supply stability while mitigating inflation. Our overall balance sheet is very strong, and we have ample liquidity even after closing the acquisition of the IOS business on April twentieth. We have the flexibility to pursue additional inorganic growth opportunities when the right assets become available. Now I'll turn the call over to Amir to discuss our outlook for the balance of the year and provide closing comments.
Thanks, Howard. We remain mindful of the challenges in the macro environment driven by localized COVID lockdowns, geopolitical risks, inflation, and continued supply chain disruptions. We're also encouraged by the strong start to 2022 and more optimistic about the long-term outlook for the dental market and our evolving business. As it relates to our IOS acquisition for 2022, we are expecting the newly branded DEXIS IOS business to deliver sales of between $35 million-$45 million over the balance of the year. We expect sales to accelerate significantly throughout the year, with Q2 being relatively lower based on owning this business for two months in the quarter, as well as on short-term pressure related to the China lockdowns impacting operations in Shanghai.
It's important to note that we are planning to invest over $10 million in one-time costs to support both the integration of this business into Envista and to position DEXIS IOS for rapid growth in 2023 and beyond. About half of this investment will come in Q2. For the rest of our business, there is no change to our previous guidance of core growth between 6%-8% for 2022. We remain committed to achieving an adjusted EBITDA margin of over 20% for the full year. We are monitoring the ongoing lockdowns in China, and while we don't believe these challenges will have a material impact on the full-year outlook, they could impact the quarterly results. Our current view is that the core growth in Q2 will be in mid-single digit and we will accelerate growth in the second half of the year.
We expect Q2 adjusted EBITDA margins to be in the high teens as we make the one-time investments in DEXIS IOS integration and further navigate through inflation and the impact of the spot buys in our equipment and consumable businesses as we steady our supply chain. Moving forward, our priorities remain the same. We will accelerate growth, expand our operating margins, and continue to further transform our portfolio through active and disciplined capital deployment. Our intention is to be the leader in orthodontics, providing a differentiated and integrated suite of treatment options, including brackets and wires and clear aligners. Our comprehensive offering empowers orthodontists to provide the best individualized treatment plan for each patient. We will further accelerate our growth in implant-based tooth replacements by leveraging our diagnostics and digital capabilities to provide complete solutions across the implant workflow, including regenerative and prosthetic solutions.
We will continue to grow and broaden access to our highly profitable and differentiated consumables business. Finally, we will leverage our strength in imaging and diagnostics to build digitally integrated workflows from diagnostics to treatment planning to execution for our clinical partners. We will continue to draw upon our EBS heritage to both improve our execution and drive margin expansion. Finally, we continue to see significant opportunities to invest organically and inorganically, and we have the financial flexibility and management focus to further accelerate our growth trajectory via disciplined capital deployment and inorganic investments. As we continue in our journey to digitize, personalize, and democratize dental care, we're excited about the future of dentistry. We're strategically differentiated and have a proven track record of execution.
We continue to see significant opportunity to accelerate our growth, improve our margins, and create long-term value for patients, our customers, our employees, and our shareholders.
Thanks, Amir. That concludes our formal comments. Operator, we are now ready for questions.
At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one to ask a question. Our first question will come from Jeff Johnson with Baird.
Thank you. Good afternoon, guys. Amir, I got two questions, if I could, real quickly. Just on pricing, you know, I know another price increase went in May 1st. Just wondering, one, how broad is that across product lines? And two, is it fair to think about that price increase kinda helping offset obviously some of the China pressures right now and maybe a little bit of macro uncertainty elsewhere across the globe? Just conceptually, is that how to think about that?
Sure. Hey, Jeff, this is Howard. Maybe I'll take that one on pricing. You know, we are actively managing price. I think that even as in late 2021 and into the first quarter here this year, we took selective price increases, reduced discounts, and instituted, you know, freight surcharges as appropriate. You know, while we're not instituting across-the-board price increases, each opco is closely monitoring inflation, market dynamics, and, you know, taking the necessary price actions as appropriate. Certainly, it'll provide a tailwind here for growth, and it will help countermeasure some of the inflationary impact that we're seeing as well.
From a macro environment, Jeff, what we are seeing in here, you know, China, we believe that the situation is gonna work itself out throughout Q2. It is a significant market with tremendous amount of opportunities. We are committed to it, and we will work through some of the interim challenges until we are able to provide the support and capabilities that are needed in that country. We have been able to manage our way through Russia issues, we're committed to helping our partners, the professionals, to provide better quality of life to patients, and we have been able to get actually products into Russia and continue to be bullish about our ability to manage some of the challenges that we see in this environment. Here is where EBS come in play.
Our ability to really focus on daily management, improve the operational capabilities, the segmentation, the commercial approach that we have, and we think that we are, the past several quarters, have proven that we have the ability to manage through some of those. In the short term, obviously, we're facing some challenges, but our commitment in delivering to that guidance that we have provided earlier remains, and we think we can solve some of the challenges that is coming our way.
Thank you, Amir. That's helpful. Just a quick follow-up on Spark. You know, obviously doubling year-over-year or more than doubling, a good number. I think we're all trying to figure out and titrate between, you know, some pressures your largest competitor in clear aligners felt this quarter versus you guys more than doubling that Spark revenue. If I look at that and we try to have a detailed model on Spark, it looks like to me maybe sequentially from 4Q to 1Q, Spark revenue was still down a little bit, which would be normal for seasonality and totally get that.
Just want to confirm that because that would kind of show, I think, that you and others in the space, you know, are kind of just seeing normal seasonal patterns right now and kind of similar trends to a certain extent? Thanks.
Just in Q1, we saw a strong sequential growth, 17.3% Q1 versus the Q4 of last year. We had a strong sequential growth. We saw increase in the number of active doctors. We saw more utilization of our active doctors. Growth is widespread across various geography. Western Europe is showing notable strength, and we continue to add Spark to different geographies through our registration process. We're seeing doctor adoption continue in various geographies: North America, Europe, China, and expansion into the DSOs as well. It's double-digit growth on the number of doctors that they're using Spark as well. Those are some of the things that we have seen in here and continue to be committed to what we said before, which is about tripling the size of this business over the next three years.
Well, I will sharpen my pencil on that model. Thanks, Amir.
Of course.
Thank you. Our next question will come from Elizabeth Anderson with Evercore ISI.
Hey, Elizabeth.
Hey. I have a question about the China number. One, it seems like from my recollection, China's about 10% of your total revenue or maybe about half of your emerging market revenue. Does that imply that these results came through with China being down to about 15%, year-over-year? Does that seem about roughly the right ballpark?
Yes. If I get back to the emerging markets a bit, outside China, emerging market in Q1 was up almost 15%. Look at our overall emerging market business is about 23%-24%, and China is about 10% of that. We have seen a strong growth on other geographies. Exactly as Howard said, that was about 14%-15% down in Q1. The rest of the business did extremely well. We think that commitment that we have made to emerging markets continues to deliver for us in the long run. As China opens up, we have orders in our hand as warehouses opening up in Shanghai. We think that we can catch up and compensate for some of the challenges that we had due to lockdown.
Got it. That's super helpful. I also just want to make sure I understand all the different macro drivers. Did I also hear you say that you think the Russia revenue should sort of come back in 2Q and thus not be a headwind as we think about the go-forward revenue?
We said that in Q1, we did better than our original plan in Russia and Ukraine. We have said that this business is about $100 million, and obviously the conflict is gonna continue in here. Our expectation is for the rest of the year, we're gonna see flat, maybe a little bit modestly lower than what we saw last year. If you go back only four weeks ago, four to six weeks ago, we have a better outlook of what is taking place in on the ground. As I mentioned earlier, we are now in a position that we can actually get some products into Russia that help us to continue to provide help to the patients and to the doctors and provide a quality of care that we have become accustomed to to our Russian customers.
Got it. That's super helpful. Thank you very much.
Thank you. Our next question will come from Erin Wright with Morgan Stanley.
Great. Thanks. Can you speak to what the initial focus is in terms of the integration of Carestream here? You've mentioned obviously some of the near-term investment on that front, but what is some of that, the near-term opportunities to capture greater market share with that offering? And then also maybe some of the longer-term opportunities that would require maybe some incremental investment as well? Thanks.
Of course. I'd like to break it down into three key areas of what that integration look like. Before I do that, this is about $1 billion, as you know, over $1 billion market. It's growing double digits. We've got a business that it is really R&D and from a technology perspective, is well established as a EBITDA margin of over 30%. Overall, IOS as a whole is less than 15% penetrated worldwide. Now coming back to the integration, three areas. Number one is around a go-to market and commercial activities. We have over 3,000 people in our commercial organization. Over 60% of our business is direct. They have access to a large areas of under-penetrated geographies that the Carestream was not able to reach, and great relationship with the DSOs.
That gives us an opportunity to really ramp up the reach, the access of this business in various geographies, in various segments, bundle it with our direct product, go through DSOs and work with the partners that we have around the world. That's the first area. We are in a really good place already to leverage what they have done in the past and add to it going forward. The second part of this is around operations. We're known for our lean approach in improving on-time delivery, quality, margins, and I think we can add a lot of substantial amount of effort in here as soon as we have access to that manufacturing site. We can improve the quality, delivery, margin and reliability of this product.
We have a long-term plan for it, and we have a really good insight into the due diligence of what we can do to improve it continuously and create a product that it is really outstanding and one of a kind in the segment. Last but not least is around innovation. This team comes with a very good exceptional R&D team. They have a robust hardware, they have a really good suite of applications. And you know, they have some capabilities that is really positioned for DSOs and aligners. We take that, you integrate it into our DTX, you integrate it into our clear aligner business and our implant placement capabilities. Now we have a full-blown solution, digital workflow capabilities that we can put that as a first step of many high-value dental procedures, implant, prosthetic, clear aligners.
Go to market, operational improvement and R&D, and having the long tail of the product that we can put out there in order to really advance this over time. We think this business in the long run requires some investment on our part. It's a car wash, it has basic investment in IT and other operational piece that we need to do. As we have communicated in the past, we think it's gonna add about a 50 basis point of growth and over 40 basis point of a margin to our current portfolio as we ramp it up over time.
Okay. That's really helpful there. Just one other smaller item was on supply chain challenges just across equipment. It seems like you have better visibility there at this point. I guess that goes into a broader question on the reaffirmed guidance. Do you think you have enough buffers in there just given all the variables from a macro supply chain geopolitical perspective at this point? It just seems to have better visibility there. Is that the right way to think about it? Thanks.
Yeah, Erin, this is Howard. I think that, you know, we're cautious about, you know, the consistency of the supply chain. We know that things are dynamic in the marketplace. We have deployed our EBS tools. One of the things that we've done, and we talked about, is increasing our inventory supply to ensure that we still have our consistent lead time. The reality is there is some challenges around petroleum-based type of product as well as chips, and so we're monitoring that very carefully. The team has done an exceptional job to date in ensuring that we've been able to meet customer demand. That's what we continue to anticipate as we move forward.
Okay, thank you.
Thank you. Our next question will come from Nathan Rich with Goldman Sachs.
Hey, good afternoon. Thanks for the questions. You know, Amir, I wanted to start maybe high level. You obviously acknowledged some of the macro pressures facing the consumer, but it sounds like you expect demand for dental procedures to remain pretty strong. I guess, could you maybe just help us think about or talk about what played out in kind of March and April as some of these macro headwinds became more acute? You know, why you kind of feel like the business is gonna be pretty resilient, kind of in light of some of the uncertainty out there?
Yeah. Thanks, Nathan. I think what we think there is a fundamental shift in the long-term view of the dental industry. We have seen that during the earliest stages of 2020. We saw the resilience of industry, how quickly it came back. You see there is a fundamental change in how people invest and use dentistry to improve the quality of life. In the long run, we believe that this industry has tremendous amount of runway. Now going back, what we saw in December and January, specifically in North America and Europe, the volume of patients dropped significantly, and it was purely because of Omicron. We saw cancellation, we saw some postponement.
In some places up to about 30% of even dental professionals, they had some challenges coming to work in December and January. We saw it in February, we saw a ramp taking place and continue. That ramp continued through February, March. April has been an interesting month. You know, you had Easter, you had some holidays in here. Then purely what we are seeing in here is the China impact. Outside of that, we see a continuation of what we saw in February and March. As long as we can work through that process and we are able to see our way sometimes in May, maybe early June, that the China opens up, we think that the market is resilient. Market is going to come back.
That's why we feel comfortable with the guidance that we have provided, and we think we can manage through some of the choppiness in the short term in order to be able to execute going forward. The other part of this, Nate, that may be worth mentioning in here is our ability to execute. We have become a lot better in putting energy around a specific set of priorities and continue to build robust capabilities. Example, Spark ramp that we have done in the past nine months, N1 training that we are now able to do on a cohort, and week after week after week, we have been able to do those things, and that would give us that confidence that we would be able to continue to expand our business for years to come from here.
That's helpful. Maybe just a quick follow-up on China. You know, one of the other focuses in the market right now is just the volume-based procurement that the government's putting in place on the implant side. Could you maybe just update us on your expectations around that and maybe remind us how big your implant business is in China as well, you know, the timing for when we, you know, might see an impact on that front? Thank you.
Yeah, of course. We have mentioned that we have, you know, over $250 million business in China. About 10% of our business is in China. A big part of our business is implant. That business has been growing significantly. The volume-based procurement for dental implant is something that is going to become realities in selected provinces in 2022 and probably national rollout in 2023. It's important to notice that the Chinese dental market is a self-pay market. Volume-based procurement does not directly impact in the private sector. It's unlikely that it's going to have, in the long run, much of an impact as we have shifted our business into more a private sector and on the premium side, on the self-pay.
We think that our focus on the segment, with the rise in middle class, growing disposable income, we would be able to manage through this. It would have an impact, but that impact is not that substantive. We think that we would be able to compensate for it, and it's not going to impact our long-term growth expectation in China.
Thanks very much.
Of course.
Thank you. Our next question will come from Michael Cherny with Bank of America.
Hey. Afternoon. Thanks for all the details. If I could jump back to North America, I know you called out the infection prevention business as part of the headwind for the quarter. Can you give us a sense on what North America grew ex-infection prevention or what the headwind entailed, especially given some of the choppiness that we've seen from some companies, specifically within the U.S. and North American markets?
Outside infection prevention, we have seen continuous growth in a variety of our businesses. We mentioned that our implant business has had six quarters of positive, and every quarter has been better than the previous quarter. Our premium implant continued to perform really well, high single-digit%. Our Spark business and Ormco business continues to perform. Our bracket and wire business is in the mid-single-digit%, double-digit% on the Spark side. Imaging, mid-single-digit%, continue to grow. Our consumables outside the infection prevention had an incredible Q1, high single-digit% growth in that area. Pull all of that together, we think it is in a low single-digit% growth, North America. We mentioned that it's 2%-3% as a whole, but a big part of that, the impact is this course correction on infection prevention.
Yeah, maybe just to jump in here, Michael. I think our Q1, you know, that was the one low light as it relates to North America. If you think about our core growth, as Amir indicated, you know, KaVo, our instruments business, or our imaging business was up, you know, high single digits. Our Ormco business in North America, combining both wire and bracket as well as aligners was up, well into the double digits. And our Nobel, you know, overall our implant business, our premium implant business was also up high single digits. So, really a lot to be very favorable about, it's just that infection prevention. Again, a lot of it has to do with the comps.
We anticipate by the second half that we get back to growth there. Long term, even in that business, we anticipate that being mid-single digits.
Understood and helpful. If I could just circle back on the VBP question relative to China. As you think about your exposure between the public versus the private hospitals, at what point in time will you feel like you'll have visibility around, A, where VBP will impact your public hospital business, and then, B, I know at times in some of the other markets, it seems like there's been some pricing spillover from public to privates? How are those conversations going with your significant private hospital market contract about how they think about pricing in a world where the VBP could impact the public hospital pricing?
Yeah. I'm in touch with them despite of all the challenges of not traveling. We are on ongoing discussion with some of our partners, and over 75% of our business is in the private segment, and that has continued to increase almost every quarter. Yeah, your assumption is absolutely correct. It's gonna have an impact on the public hospitals and would have an impact. This is where innovation, training, and education and the commercial execution that we have comes in place. This is not necessarily related to China, but overall. Let's say you wanna do a full arch treatment. In most of these places, even in China, a full arch is over $20,000.
The cost of implant in those areas when you get the credibility, the support, the reliability, it's fairly small compared to what you get on the consumable side. Given the self-pay nature of this, if you have the support capabilities, the training and education, the technical innovation that people are looking for, you're able to manage through this to get yourself in a much better position. That's what we have been able to do in various geographies, and I don't think China is gonna be any different than other geographies. The value segment of the implant exists everywhere. That has been a phenomenon that has been around for quite some time. In parallel to that, we continue to grow our premium Nobel business while we're getting prices.
Got it. Thank you. Final call.
Of course.
Thank you. Our last question will come from Jason Bednar with Piper Sandler.
Hey, good afternoon. Thanks for taking the questions here. Really just building on a couple from earlier in the call. Just maybe on Carestream to start. How, Amir, when do we see some of the fruits from the pipeline that you've referenced now a few times? Or I guess maybe asked another way, how do you see the new product cycle and replacement cycle playing out now that the IOS asset is under your ownership?
Yes, happy to answer that, Jason. The current portfolio has a group of products. It has three different products already, a point solution, a kind of on the value side, 3600, the 3700 has been in the market, and then the newly released of the 3800, which is really a, an outstanding product with wireless capabilities, and that was just launched. You got a continuum of a product that it is already in the market. Unfortunately, the 3800 didn't get as much of a momentum because of the COVID as well as the lockdown in China. We think the current portfolio offers a range of options that we can put out there and start getting momentum on it.
Integration of these products into the DTX, into the bundled solution that we do is gonna be a significant opportunity for us, not only on the iOS side as a point solution, but also improving our position in orthodontics as well as in clear aligners as well as on the implant base. We have done tremendous amount of due diligence on this company and the innovation part of it, and they have a long-term talent and opportunities for improvement and add to the product categories. What we see today, what we have today, is sufficient for us to make an impact on growth, and it starts seeing the momentum in here. Keep in mind that this market is less than 15% penetrated.
The product that they have is one of the top five, and they have less than 10% market share, and that gives us an opportunity to really ramp that up very quickly, very fast.
That's very helpful. Then maybe coming back to build on Nathan's question earlier and just looking at, you know, trends here March to April and, you know, thinking bigger picture here. I mean, understanding, you know, dental maybe not exposed to some of the issues that are going on in other parts of healthcare, but are you seeing capacity constraints or staffing dynamics creating capacity constraints when you look across specialists or general dentists that are out there, and whether that's been a bottleneck to, you know, getting back to normal, or has that not really been an issue, again, across all the markets that you play in? Thank you.
Yeah. I think maybe addressing our own kind of the discussion around our own labor concerns. I mean, we have seen some type localized challenges with regards to adding some labor. You know, but I think that we've been able to manage that through our EBS and improve productivity as well. Certainly, you know, long term, we know that the best team wins, and so we focus on recruiting and retaining the best both. As part of our core culture, we continue to engage closely with our employees and wanna make sure that, you know, we are and we remain the preferred employer of choice wherever we operate.
We do see some labor shortage in the dental offices. You know, here is where we really can make a difference in EBS at work to take a look at opportunity for productivity, opportunity for predictability. This is where software and integration workflow really make a difference. To be able to take waste out of the system. We're looking at the market not necessarily as a provider of a specific product, but enabling the dental offices to be a lot more productive, to get the acceptance rates to go up, to treat more patients. That's the charter, that's that approach that we are taking, and we're beginning to see good momentum and results as the outcome of it.
Your assumption about the labor shortage and some of the challenges are absolutely true and continue to be an issue, and not only in between March and April, and I think it's going to be with us for quite some time. That's where innovation, productivity, IT-related capabilities to software really can make a difference.
You've done a very good job managing through it, so congrats on that. Thanks, guys.
Thank you.
All right. Thank you. We do have a question from Jon Block with Stifel.
Thanks, guys, and sorry about that. I might have had some technical issues. Howard or Amir, I'll just sort of ask a direct question because this is what I'm getting some inquiries on. You know, Russia in and around 4% in 2021 revs, I believe. Within the 6%-8% core revenue growth guidance, can you talk to us about that assumption? In other words, is it the assumption that Russia's only modestly down this year? I think you might have alluded to something like that earlier. Then sort of, you know, ditto or same playbook for China. China's 10% of revenue, again, approximately. It was down, I think, Howard, you said 14% in the quarter, but you also seem to say, "Hey, look, it's a little bit timing on China," right? Quarter to quarter, what can go out and what can't.
Maybe just if you guys can give a little bit more color embedded in the 6%-8%, what are the assumptions on Russia 2022, you know, even at a high level, and same sort of question specific to China, and then I promise I'll ask a shorter follow-up.
Yeah, no problem. No problem, John. With regards to the China component, and I think Amir addressed this a little bit as well, you know, clearly we're a bit more positive on Russia than we were six weeks ago during our analyst meeting, largely because we're able to address some of the supply constraints in getting product into Russia. For the year as it's been contemplated in our guidance, we think that the Russia overall business with Ukraine, you know, combined will be, you know, somewhere flat to marginally down, is what we anticipate. Then as it relates to China, you're right, we did see a decrease of mid-teens. I think it was almost 15% down in China in the quarter.
You know, we do anticipate that we'll still see some growth in China this year. You know, just based on past experience, I think if you remember, in 2020 with the beginning of the COVID situation, I think we had our business in China go down by in excess of 35% in that respective quarter. By the end of the year, I think we were essentially flat. You know, leaning on that experience and the expectation that demand does come back, we do have some modest growth in there for China in our guidance.
Okay. Great. Very helpful. Now, maybe I'll just stick with you and stick to the P&L. You know, I know the gross margins are really impressive, flat to actually up slightly year-over-year considering freight, et cetera. Maybe just talk to us about how you get to the EBITDA margin over 20%. In other words, does it hold the line on GM and then get some OpEx leverage? Just maybe a clarity question on the same topic is, the greater than 20% EBITDA margin includes the DEXIS IOS investments near term? Thanks.
Yeah, sure. No problem, John. Yeah, I think that we anticipate, you know, gross margins. I think we had 59.2%, a 20 basis point improvement. We anticipate those to be fairly stable throughout the year. For us to get to that 20% EBITDA number for the full year, we do see some additional improvements on the spend side. Obviously, we're gonna see some additional growth. In the second half of the year, we anticipate that our growth accelerates, overall, as well as our margins improving overall. That's how we get there. As it relates to the IOS and the DEXIS IOS investments, that is included as it relates to the expense side of investments in that 20% EBITDA number.
All good. Thanks for taking the question.
Yep.
All right. Thank you.
Yeah, with that. Thank you very much to everyone. I think that's. We are at time, so appreciate all the time and look forward to following up with each of you after the call. Thank you.
Thank you.
Thank you, ladies and gentlemen. This does conclude today's teleconference, and we appreciate your participation. You may disconnect at any time.