DENTSPLY SIRONA Inc. (XRAY) Earnings Call Transcript & Summary

Okay. We're going to go ahead and kick it off. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this morning, Dentsply Sirona. For those interested in the breakout, it's going to be right after across the hall in the Borgia room. And with that, let me turn it over to Don.

Thanks so much, Tycho, and it's great to be here. We appreciate the opportunity. We'll start with just standard forward-looking statements. And look, if I was going to summarize the presentation and what we're trying to accomplish is about a year and a month ago, we announced a pretty comprehensive restructuring. We want to talk about the progress we've been able to make against that and importantly what kind of financial progress we're seeing based on those actions and then really talk about 2020 and beyond. Obviously, this close to earnings season, we're going to be very careful about not projecting things on a forward basis. But about 18 months ago, I've been on board for a couple of months, and we had begun a pretty comprehensive analysis on where the company stood. And basically, what we found is we've got a very attractive market. Dental fundamentals, we believe, are very positive. We were well positioned because we were a truly global company, had excellent R&D capacity and really believe that we had very, very powerful brands that are well positioned in the critical procedures in dental. But that -- we really looked at the company and it was not living up to its full potential because we've been put together to create scale, and we had not organized to necessarily deliver against that. And our performance reflected that, and we felt our performance was not sustainable and was not delivering the value that we think we could create. So November 8, 2018, we announced a restructuring plan that was built around 3 things, is we really feel that growth is critical as a scaled player with one of the largest R&D investments in the category and a long history of innovation. We felt that we should be able to grow the business. We felt that we needed to improve our margins, both from a structural standpoint and how we think about investing in headcount and putting in spending programs. And the last issue is Dentsply in particular had been a very acquisitive company, but we hadn't necessarily done all the work we needed to do to really focus on integration. And as a result, we had a very complex organization that had a lot of duplication and overlapping cost, which we felt could be changed. If we were able to deliver on the growth we felt that we should be able on a sustainable basis to deliver 3% to 4% growth, we felt that our margins could move significantly higher than where they were at the time. We got very creative, and we took the margins at 20% in 2020 and 22% in 2022. And we felt that if we were able to execute against the cost savings plan, we'd be able to take out between 202 -- I mean $200 million and $225 million. We also, at the time, committed to a headcount reduction of about 6% to 8% from the level at the time, which is about 16,400. If we were able to accomplish all that, we believe that we would be able to deliver sustainable double-digit earnings per share growth. And at first, I would say that the team at Dentsply Sirona has done a tremendous amount of work, and I couldn't be more proud of how the organization has responded to the challenge our management team put in front of them. And one of the first areas that we really worked on was how do we grow revenue. It's a privilege working in a global company, and I think I've now learned to say the word growth in about 15 languages. But being able to say the word growth in 15 languages does not necessarily translate into the ability to really drive growth. And to drive growth, in our mind, it's 3 things that have to happen. The first is our innovation engine. While Dentsply Sirona had a long history of investing in R&D, the R&D was not particularly productive. And from our perspective as a new management team, I began to say why. And our premise -- our thesis was basically, we had a lot of bottom-up small units developing their own R&D plans without a cross-functional or real look across a portfolio to determine what could significantly drive the business. So that was one of the first things we changed, moved to a portfolio approach where we're able to say, what are the priorities in terms of being able to deliver real innovation against important procedures? The second area is as we kind of worked through that, that we had to think about is, okay, if you have this great R&D and you have a global footprint, how do you maximize the value of that innovation by having a world-class commercial organization? And at the time, we felt that the way we were organized and the focus on very small units in various countries was really hurting our ability to look at the customer as one. It's interesting in taking the North American market, we believed our 10 dental units probably touched 100% of the dentists, but we have that all sitting in 12 different databases. We had multiple sales forces. We had multiple sales forces with multiple messages to the same dentist. One of my early car rides with a rep, we ran into a dentist who was surprised to learn that the rep was here to sell him one thing, yet there were 6 other products that were critical to his practice and no idea that they were part of Dentsply Sirona. So we went through a very significant amount of work to create what we believe is the foundation for an outstanding sales force effectiveness program. And today in North America and about to roll out in the rest of the world, we've moved to one view of the customer supported by one view in a CRM system from the 8 that we were in. And we really brought a lot of sophisticated analysis that you would see in a typical large med device or pharma company, and that discipline is abling -- enabling us to focus and target really high potential dentists for us and selling the entire Dentsply Sirona portfolio. Now backed up for the first time, we have now created one specific loyalty program that we believe is the best in the business. So we're using the different components to create the scale we need to bring solutions to the dentist office. The last issue was the dental category. While attractive, it grows at different rates in different places. Right now, the Middle East, as an example, parts of Latin America and Asia are continuing to show strong growth and good margin for us, and we believe we're scaled there. And one of the real opportunities we have is how do we take our portfolio and make sure it's approved around the world, delivered around the world and scaled around the world very rapidly. And the comprehensive footprint that we have in most of the developing markets right now is really helping us attain growth levels that are at least at category levels, if not faster, in what we think are very important future growth markets. Again, that's a lot of the work we did, and we've been very gratified that we're starting to see shifts in what our growth rate looks. If you look at the -- since first quarter 2018 to where we are today, our most recent quarter, we showed about 7.5% growth. And that was really a function of a couple of different things, which shows some of the work that we're putting in is beginning to create the foundation for sustainable growth. Primescan is an example where we had gone in, and on a portfolio basis, said we think this is an incredibly important launch. We are able to divert resources that enabled us to accelerate that, and that's really proven important for us as it's been a real blue ribbon product from us from a perspective of driving growth, creating organizational wins. And you can see the trend is really moving and showing positive growth. Now are we saying it's a straight line, that the next quarter is going to continue that exact trend? We don't know, but we feel very good that we now have a -- not only an innovation engine that is now running, but we're really making progress from a commercial perspective. And we really like where our footprint is around the globe and are very proud of the work we've seen there. Second issue is it's an attractive market, and we believe that we have an opportunity to deliver significant margin enhancement. And in order to do that, we really needed to think about if you're not customer-facing, how do we organize the entire company around the principle of scale. And by scale, that means, hey, look, if you're focused on a customer, let's make sure that there's a lot of individuality and whatnot. But things like finance, IT, HR need to move to a shared service environment, which is a significant change for our organization that has over 100 years of history of operating in small SBUs. Another example is supply chain. At Dentsply Sirona in first quarter 2018, we had 12 individual supply chains, 11 units and then there was a small corporate group. And as an example, we feel that that's a great place to start, where if you move to one supply chain and begin to run the 40 manufacturing facilities, 80 distribution sites as a single entity, not only are you allowed and able to create scale, but there you're reducing significant duplication in the organization, and you're able to create world-class functions, and we were able to attract great talent. Dan Key comes to us from Sigma Aldric and has a tremendous amount of experience in doing this. And we now have a single procurement organization and a single planning organization, a single manufacturing organization and a single logistic organization, which is an example of creating outstanding shared services, which we believe not only gives us cost efficiencies but enables us to work more effectively going in the future. The other thing that we were able to do is really get focused on a much more disciplined approach to spending, whether that's demand creation spending or investing in different parts of the organization from a capital perspective, capital expenditures on plant and equipment and other things as well as where are we investing in heads. We put a very, very disciplined program in. And again, Rome isn't built in a day, but we're seeing consistent progress from a perspective of being able to understand quarter-to-quarter what spending looks like, what headcount looks like, and more importantly putting resources where we think we're going to be able to enable top line growth. The other thing is any company that's been put together that has over 100 years of history, there's a lot of what we would refer to as experiments that are a project that somebody championed 5 years ago. And unfortunately, some of these have life expectancies that should have been cut a lot shorter than they were, and we've made significant progress on going in and finding noncore assets that were dilutive from either a growth or a margin perspective and really gone through and either sold them or closed them down. And we had 4 initiatives done in 2019, and it points to the fact that we can bring this discipline across the entire company. We believe there's continued leverage going forward. If you look at, again, progress, and we're talking about our aspiration for 20% in 2020 and 22% in 2022, you can see there's been significant progress from a margin perspective based on the steps that we've taken here. And more importantly, while we're gratified about the results we're seeing year-to-date in 2019, for us, it's more important that we're setting ourselves up for a sustainable growth pattern in -- from a margin perspective in the future. The last is kind of an initiative that is reflected in a lot of the other activities that we did, but we really felt we needed to simplify the organization. And how do we take advantage of scale? I mentioned that we're looking at centralizing structures. But important for us is how do we -- when we think about the idea that there's one customer, how do you create a single sales analytics platform, how do we begin to move from products to procedures and organize the company to reflect how the customer thinks. And we moved basically from an organization that had over 20 individual countries with multiple sales forces, with multiple supply chains, with multiple SBUs to basically a relatively clean 3 structure where there's an upstream, what we call our product group, which is R&D and strategic marketing; we have a downstream commercial organization; and we have a centralized supply chain, all supported now by cross-functional expertise in areas like IT, planning and other things. That, in our mind, has not only enabled us to drive costs down, but because we now have scaled operations, we've been able to bring in world-class talent that will help us operate at scale. It's hard if you were the head of an individual small unit to all of a sudden, you're part of a -- leading a function of a $4 billion company. So at this point, our management committee, which is 10 people, 9 of them are either new to the company or new to role in the last year. And we've been able to bring in, I mentioned, great supply chain talent. We were able to bring in, I believe, a world-class CFO, Jorge Gomez, who is with us today, who brings tremendous global experience and scale. And we're very excited about what that looks like. We said that we're going to get a headcount reduction of 6% to 8%. We were happy to report that we attained that objective ahead of schedule, and we actually have been operating at levels below that for the last 2 quarters. As we look out going forward, we feel that we'll focus a little bit more on productivity measures now that we've kind of attained a solid headcount level. And we think that we'll deliver a little bit better than $85 million in cost savings over the course of this year. That puts us well on track to deliver the $200 million to $225 million in savings. And if you look at it -- and again, if you look at our kind of margin improvement, you can see that we -- we're showing significant and consistent progress, which we're gratified reflects all the hard work that the organization has done. When you put all that together, you grow, you improve your margins and you simplify the organization, you see a natural appreciation in earnings per share, and we believe that we've shown pretty significant and consistent progress over the last year since we put the restructuring in place. And more importantly, we believe that we're creating, in our mind, an engine that's going to be able to deliver the sustainable growth at the margins we think that will enable us to deliver double-digit EPS growth into the future. So my Board is fond of saying, "Okay, you've made some significant progress last year, what have you done for me lately?" And right now, our focus is how do we create not a specific, this is a great quarter, but how do we create something that delivers consistent, sustainable growth growing into the future, and we think it's built on a couple of key things. The first is we believe we're in a very attractive market. If you look the dental space, it's a category that we think is between $27 billion and $30 billion. It grows consistently. It's a place where innovation really creates an opportunity to grow. If you look at things like our CEREC, CAD/CAM machines, if you look at clear aligners, if you look at some of the technology around implants, it really shows that it's a category that innovation is really well rewarded. And we have a lot of discussions because different parts of the category grow at different paces. But overall, if you look at things like our technology and equipment, which posted very strong growth in Primescan, if you look at implants, if you look at things like clear aligners, you're seeing parts of this category are growing in high double-digit levels. And some of it is not growing as quickly. Our consumable business, which is large and profitable, is a place that we're optimistic that our combination of superior innovation and enhanced commercial capabilities, including a loyalty program that delivers scale to the customer, gets us there. I'm going to talk significantly -- I'm going to talk more significantly about our R&D efforts. But again, we believe that we have one of the best, if not the best, R&D organizations in the entire industry. And we look forward to investing and approaching things a little bit differently, moving from kind of a bottoms-up feature and benefit SBU-driven thing to a procedure-focused portfolio management structure that will enable us to better deliver scaled solutions and take advantage of our perspective. And again, I can't say it enough, if you've got great R&D, how do you commercialize that rapidly around the world? And given the fact that we operate in over 150 countries, we believe that we're probably the best global scale player in a category. And the last issue we just talked about is how do we deliver consistently on the idea that we can improve our margins. I mentioned R&D and improving the pipeline. This portfolio approach was one of the first things that we worked on upon arriving at Dentsply Sirona because again, growth is absolutely critical, and we believe it's our lifeblood, and we believe it's a differentiation. Now unlike some standard med device categories where you can put out, okay, this is everything we're going to launch, in our category, you tend not to talk about equipment because you will basically see equipment purchases stop if there's an anticipation of a significant new entry. So we'll talk a little bit about looking at our track record. You can see in 2017, there were 5 what we would call major launches. Again, there were 5 in 2018. If you look at -- we doubled the number of significant launches in 2019, which begins to reflect an emphasis on how do we focus on innovation that is both substantial and then we can go support it. And I'd point out things like SureSmile, getting our imaging line squared away, stuff like an immediate load implant, obviously, our Primescan. And it's not just Primescan, we were able to update the software across that entire system, points to the idea that we are really focusing on innovation. Now without going into what 2020 looks like, we believe that 2019 establishes kind of a new threshold of how we think about delivering innovation. And we believe 2020 and 2021, you'll see this level or more where we believe we're going to see throughput on a very efficient R&D organization. The other thing I would point out is having worked in other med device categories, if you introduced a new drug-eluting stent within 6 months, everybody in the world would move to that new technology. Dentistry is a slow adoption, has a pattern of slow adoption of new technologies. It's a large market. There's close to 450,000 active dentists around the world. It takes a while. So interestingly, the things we're launching in 2019 importantly have a tail that delivers beyond that. A great example is Primescan, where we just actually launched an upgrade program in the United States. We haven't launched that upgrade program around the rest of the world, which points to the fact that we have an opportunity on these products to see a 3- to 5-year tail behind that. So again, new products is our lifeblood. We believe that our approach based on portfolio and other things is going to deliver growth. I mentioned commercial organization, and it's always interesting at this conference, you get to bump into old colleagues and whatnot. And it's very interesting. I believe that dental has a lot of the characteristics of med devices and pharma, but it's a market that hasn't evolved quite as quickly. And what you would think at a Johnson & Johnson, Boston Scientific, Medtronic would be standard practice around sales force and marketing is stuff that we're being able to bring into Dentsply Sirona. And the idea that we're moving away from, say, in the U.S., where we had 5 SBUs that had their own sales forces, there was no one person in charge of the U.S., we're now moving to a scaled commercial organization that has one view of the customer. And as you begin to combine all these different views of the customer and you create a lot of data and analytics, which we think allows us to bring better targeting, better messaging and more importantly more sophisticated sale analytics about measuring effectiveness and other things. We moved to Salesforce Lightning across our entire organization. That's a very, very big shift from an organization that historically had between 8 and 10 CRM systems globally to 1. So you begin to think about the efficiencies we get there. And our sales approach was basically predicated on we would work with our dealers to pick our targets as opposed to now Dentsply Sirona will pick its targets based on where we think we can bring the entire Dentsply Sirona solution there. So as we think about the year, we think critical steps were taken, get the pipeline [ work and ] get the commercial organization. We think we made good progress in North America. We're looking forward to rolling that program all around the world. We believe we've got a disciplined approach to headcount and expense management, which is going to allow us to deliver sustained improvement from a margin perspective. And we really believe the organizational structure we've been operating in for the last year has -- is working well in terms of delivering simplification. And again, if we do all that, our aspirations, how do we see consistent year in, year out, 3% to 4% internal growth with margin improvement that's very measured and delivering in cost savings of $200 million to $225 million and we've attained the headcount, and we continue to believe that we should be able to deliver sustainable growth. And just to wrap it up, in our mind, as you do restructuring, a lot of people have been involved in these -- one year is not a restructuring. It's basically how do you create a sustainable platform to grow, and we think we've made solid progress against that. Our entire organization is gratified to see the recognition in the financial results, whether that's improved growth rates, particularly last quarter, where you see improved margin and delivering against headcount, and we believe that the function of an attractive market with a scaled commercial organization with world-class R&D positions us extremely well for the future. And we're optimistic as we continue to build what we believe is a scaled end-to-end solution player in a very attractive category, it's a good place for us to be. So with that, thank you very much. And I know a lot of our Dentsply Sirona employees are there. I can't thank them enough. They've been doing a really, really good job. And with that, we'll probably move to questions. I believe, Tycho, we're in the Borgia room. So thank you very much.

So maybe, Don, just to kick it off, you talked a little bit about what you're feeling [indiscernible] the majority of the operating [indiscernible] so anything about kind of [indiscernible]

Tycho, it's a good question. We were using baseball analogies the other day, and we're in the first 1/3 of the game. As you bring in somebody like Jorge, they're obviously going to make some changes that are reflective of the overall design. I would say, look, the work we did in 2019 is reflective of the obvious steps that we needed to take. We're now into kind of the hard work phase where you're building cross-functional processes and driving that deeper into the organization. I would say morale in the last 2 quarters has been significantly improved. We had a successful IDS. We had a successful DS world. We're seeing progress on the new products. So people feel good that they're starting to see wins. That being said, we took 1,000 people out of the organization. So there's still some things that are going on there. But I feel rather than a sports analogy, we use kind of the housebuilding analogy where architecturally, we feel very, very good. We've put the foundation, and now we've got to do the plumbing and whatnot. So none of this is a straight line, but we feel that we've got good leadership, a solid direction, a committed company that's passionate about what we're doing. And there'll be bumps and bruises as we move to kind of a shared service environment, but we believe that we put the kind of leadership in place and the systems in place that should enable us to deliver over the 3 years of the restructuring.

A lot of your growth is actually being driven by Primescan. Can you talk about some of the [indiscernible] after you rolled out your software. Just talk a little bit about [indiscernible]

Yes. And for the people who can't hear the question, it's basically what does Primescan innovation look like kind of going forward. We've already -- since introduction last year at Chicago Midwinter, we've already put in new software programs, basically, the next iteration of CEREC that we feel very good about. We introduced a product recently called OraCheck, which actually begins to let you capture visual pictures of the smile and the mouth, which we're able to incorporate now with the scan, and that's something we're just in the process of rolling out. Primescan, to us, was an innovation in a couple of ways. Obviously, a feature and benefit perspective, it's fast, it's accurate, it's super easy to use, an innovation that I think is not as obvious, it's the first time we really have elected to compete in the DI market, where we've historically been very chairside-focused, full chairside systems. We now believe that it's important for us to compete in the DI system. So that's actually a pretty significant innovation. And as we look at it, we'll bifurcate that a little bit. The DI will go one way in the full chairside because it's associated with it, the mill will go another. But where we are in the upgrade, obviously we launched a program in the U.S. in October. That was very successful. As a matter of fact, if you follow Sirona historically, normally we would've done an upgrade program a little bit earlier in the cycle based on the demand and our ability to sell full chairside system to new users. We kind of pushed that back. The response to a DS world to the upgrade program was significant, and as a result, we've been actually kind of in a catch-up mode from a manufacturing standpoint where demand has outstripped our ability to manufacture and it's not -- it means a back order of a couple -- it can be a week, it could be 2 weeks. But we're working hard, and we expect that situation to be ameliorated in the first quarter, which would allow us to begin to launch that upgrade program around the rest of the world, but we don't have a specific timing on that. We really want to be focused on customer service and being able to deliver there. But we're very early in that cycle, and we're extremely early in where we think Prime is in terms of upgrading it.

Yes. And just in terms of -- are you expecting [indiscernible] lapse. You talked a bit about [indiscernible] DSOs and then also [indiscernible]

There's a couple of things in there. I mean the question is, where are you with Align? I'll do them in reverse order, Tycho. So we are a big provider of digital imaging to Align from our Omni business. We, at this point, are not -- they've not validated Primescan with Align. We made all the files and things available to them. If they want to do that, it's great. If not, that's fine. We're finding our Prime and CEREC users extremely happy with the product, and we now believe that we've got a very competitive product with SureSmile that would give them access to a clear aligner, and we find CEREC docs really like CEREC. So we think about that's -- we're comfortable with where we are in that right now. As we think about competitive mills, I would tell you, first, in a lot of ways, we're almost gratified that there's no competition because it validates the concept, that's other people talking about it. We feel great about where our mill is today. We believe it's unmatched in its capacity in terms of delivering super accurate, easy to use. And we believe the fact that it comes with a fully integrated system that's designed from beginning to end to be CAD/CAM, we feel that we're very comfortable in our competitive position from a mill perspective.

And then just a follow-up on the DSOs.

Oh, DSOs, I'm sorry. DSOs are a very important part of the market. We -- with Primescan, we've changed -- we -- in some ways, we've changed the game from an economic perspective just because the amount of time it takes to scan is pretty different and the ease of use and the connectivity to other parts. So look, some of our big DSO users are aware of Prime, very excited about it, looking forward to upgrading. We believe we're a lot more competitive now. We're having conversations with -- you almost have to think of 2 tiers of DSOs. Tycho, almost -- yes, think of the big 3, and we're getting very, very good reception from there. But there's also a very quickly growing kind of 50 to 100 dentist group practices, which we kind of think of as DSOs. A lot of success there. Because ultimately, the move to digital dentistry is critical. It just saves time. It makes the dentists more efficient. And the biggest cost in a dentist practice is the dentist time. So you can save them time, we feel pretty good about that. So no huge announcements from a DSO perspective, but that's something that will, we believe, evolve positively over the next 12 to 18 months as DSO contracts tend to be 2 to 3 to 4 years. One quick question [ on us ], yes. Yes sir.

Yes. As we think about just the DI market and opportunity there. If you look at the U.S. and the 150,000 general practitioners in the U.S. over the next 5 to 10 years, how many of those do you think will have a DI, whether it's stand-alone or that shift [indiscernible]

Sure. For us, look, we hadn't competed in the DI business. As a matter of fact, it was -- we don't want to go there because it would diminish the focus we had on full chairside, and full chairside is something we believe we have a very strong competitive advantage on. We made a strategic decision 18 months ago to begin to compete with Prime, and that's how we launched the product. The reason we did that is because, without trying to be a salesman, I honestly believe that the future of dentistry, whether it's 5 to 10, the future dentistry is going to be digital. And I know everyone here has had an experience with a dentist. But I mean if you go back 15 years ago, I mean you were doing X-rays on film and you were doing a lot of impression with materials, well, those things take time. And if you can move to a 2D, 3D cone beam that's done in 45 seconds, if you can do a scan that a -- the dentist doesn't have to do, the dental assistant can do, and you can do that in under a minute and attach that to an insurance file, the time savings alone, it becomes imperative for the dentist to be competitive long term to move to some form of digital program, whether that's scanning or whether that's X-ray. So look, I -- dentistry moves slowly. So is it going to be 100% DI in -- or some kind of chairside in 10 years? I don't know if it's going to be 10 years. I do believe that the future of dentistry will be driven by patients wanting the treatment planning superiority that comes with digital industry. And it's one of the reasons we get optimistic. Again, not talking about 2020 guidance, I mean we believe we have the largest installed base of digital equipment between CEREC and our X-rays, and we believe that is the path to go in the future. So we're -- if you can't tell, we're pretty optimistic that digital dentistry has to -- and by the way, it'll work in different paces, U.S. and Europe and Asia and other places. It'll roll at different paces. But it's -- we'll be looking at museums that will have old parts of dental, and a lot of that will be things that we grew up with, but it certainly won't be the future.

What's your take on the SmileDirect [indiscernible] going to the ortho channel?

Tycho asked the question, what do we think about SmileDirect going into the orthodontists. Obviously, SmileDirect has been very active recently. I think their move into ortho is going to be -- is somewhat challenging. I mean the orthodontists probably didn't look at necessarily kind of the consumerization of clear aligners as a positive development for their industry. So now you're going to go through it. But at the end of the day, Tycho, from where we sit, we think clear aligners is important. We think it's still very, very early stage. So if SmileDirect and Straumann and us and others are continuing to carry that message into the dental profession, we believe it normalizes that process. And we believe we've got a really competitive offering from a design perspective and ability to deliver what we think is superior treatment planning. So we'll see how it plays out. I think it's going to be a tough road to hoe, but I'm sure they have data and a positioning that'll make it attractive from them.

And just maybe [indiscernible] you talked of this more about during launch. It's now rolled out [indiscernible]

Sure. Yes, and Tycho, that's a good question. We get asked -- one of the challenges when you put together investor news is if we don't mention every single thing, the omission immediately indicates that there's a problem. And that's not the case. We're -- we've owned the OraMetrix asset for close to 18 months. We're extremely happy with how it's performing. We had some cleanup work to do from when we bought it. You mentioned software. We now believe we have an outstanding software product aimed at the GP audience. We had to do a fair amount of scaling in the back end so that we could take what was a relatively small company and build a global commercial engine that would enable us to get clear aligners all around the world. That work is completed. From a growth perspective, we believe that we're growing at least at category levels. The challenge is it was a relatively small base. So if you're talking about a $4 billion asset that, if you want to point to, is that capable of driving a quarter-to-quarter growth performance, it's not something we measure as a driver. I would tell you, we're excited about where SureSmile is for perspective. The One DS program, which we launched at -- in the North American market, is really predicated on the idea that you get an equipment discount if you buy incremental consumables from us. Interestingly, the first thing we went to, our CEREC docs and said, "Hey, you can fulfill your obligation on One DS if you buy 2 SureSmiles," and we got a very, very positive reaction to it, as an example of how we're trying to use scale to get there. So again, we're -- first, I think the clear aligner business on a global basis is in a really exciting place to be. I think we're well positioned. And we really feel that we've now done the important groundwork that will allow us to begin to be a little bit more aggressive from a commercial perspective, and we look forward to updating people on progress. But we're very happy with SureSmile.

[indiscernible]

Yes, it's an interesting question. I mean obviously one of the biggest changes in the category is between Align and SmileDirect. And by the way, there's 5 or 6 others that are doing some form of DTC, direct-to-consumer advertising to create awareness of the clear aligners. That's not the path that we believe is the best way for us to go. We tend to be a dentist-focused company where we do activities to give the dentist an opportunity to point to the fact that this is a reputable brand. From a social media perspective and other things, yes, we're looking at that. But we don't believe the path to success for us is to try and be the fourth in on -- do a DTC campaign there. We believe building the relationships with the dentist and let the dentist -- arm the dentist with the tools they need to be successful in selling clear aligners is the path -- is a path across our entire business.

Can you talk more on the implant strategy? And you kind of said you want to grow up market rates, like what would be the investments [indiscernible]

Sure. It's really interesting. I made the point in the prepared remarks that the -- we get a lot of questions about the dental market slowing down. And I always say, well, you get numbers on the Patterson and Schein North American consumable market, that is not the dental market. If you look at the aesthetic parts of it, implants being one of them and clear aligners being another, the category is showing real growth. And unfortunately for us, our implant strategy is, in some ways, the poster child of how Dentsply Sirona was organized, where we had 5 brands, we had 5 different R&D organizations, we had no portfolio approach. We've changed leadership. We've moved to a portfolio approach. We've been there for about 9 months. We're happy that we now have one R&D program and we now have an immediate load, our Astra Tech EV, which we think was a real miss in our portfolio. We continue to invest both commercially. But we believe we're to the point where we know where we need to get to from a portfolio, and you'll start seeing that come out. I would highlight 2 things that I think are missed sometimes about our implant portfolio. First is we do have, we think, a very competitive value business called MIS, we bought a couple of years back. And now that that's part of the portfolio, we believe we can be more competitive in DSO spaces and others. The other is we believe we have a product called ATLANTIS, which we've actually updated and spent money on continuing to try and innovate, which is a custom abutment, Tycho. So as you see more immediate load, we think demand for custom abutments will actually go, and we believe we're extremely well positioned in this ancillary part of the implant market. So I would say, we've been -- yes, we're up a quarter, down a quarter. Our immediate aspiration, let's time that in a year-plus, is to grow at category levels, which we believe is mid-single digit. And ultimately, we believe our portfolio of brands -- we're very excited about what our R&D portfolio, which will be rolling out over the next several quarters as well as some facilitators like custom abutments, which is a real differentiator, it gives us a position to ultimately gain share because we believe the implant business is extremely important.

And can you talk a little bit about where the R&D dollars are going? It sounds like 2020 may be pretty [indiscernible]

Yes. Again, we're not going to break out the entire P&L from 2020, but I would tell you that it's our strong desire. And Jorge talks about capital deployment. The first place we want to deploy capital is growth, and the best way we know how to grow is improve R&D. So we look forward to continuing to invest R&D. A matter of fact, we hired [ Cord Friedrich ], that's our Chief Technical Officer. So we've brought in world-class R&D with the idea that we're going to invest in that space. 2020, again, without getting into it specifically, and Tycho, that's a place we all got to get to where we can show the next 3 years because I think you guys could get kind of a flavor of where we're going. We're pretty confident that the level you saw in 2019 is kind of the new benchmark, and our idea is to improve. And we showed you the 8 innovations that we would consider class -- kind of a class by themselves. And that's kind of what we -- without being really, really specific, that's what we expect to be the baseline going forward. And one of the things is -- Primescan has obviously done really, really well, but there's a couple of sleepers in there. I mean we were talking at dinner last night about -- we're super excited about our 3D printed denture product. And you say, "Oh, dentures, that doesn't sound all that attractive." Well, we partnered with Carbon and we've got a really innovative way for labs to participate in what we think is kind of a breakthrough in the denture market, where 3D printing allows you to basically create a surface that doesn't have a lot of biomass associated, a lot more comfortable because you're printing it to -- your mouth would be different than mine. And if you want some fun, go look at the YouTube site on our 3D printed dentures. People are running trucks over them and other things. So we -- it's kind of innovation that these kind of small things that take a little while to get there, but we believe that's an opportunity. As you look at the major parts of our portfolio that continue growing. So R&D is a priority. We believe we're a lot more effective R&D. I hope the investment community is asking me next year, why aren't we investing more in R&D?

[indiscernible] other 3D opportunities [indiscernible] about CEREC, could that ultimately kind of displace traditional milling for bridges, crowns [indiscernible]

In the distant future, I mean the -- with the 3D printed dentures, it's still using milled teeth or manufactured teeth. There are things that we believe in the category that are always going to be milled, and we're very, very focused on how do we maximize milling. And if you think about like surgical guides and other things that you can do with -- making sure that if you're going to do a 4-tooth bridge, you can do that quickly and efficiently there. That's -- I don't expect 3D printing and the next X, Y or Z to overtake what milling is because some stuff, at the end of the day, in the mouth is so hard, it's got to be milled.

How are you thinking about M&A? Actually, you mentioned R&D as kind of a priority. But [indiscernible]

Yes, one of the great things about having a CFO with a fresh perspective is that you get to reevaluate your capital strategy. So Jorge, how are we thinking about M&A going forward?

Yes. I think right now, all the restructuring steps that we're taking now, finalizing that job, that is our top priority. So we, of course, always look at opportunities and assets that can be complementary to our portfolio. But at this point, we're heads down thinking about R&D. So operationally, for example, from an R&D perspective, we're spending a lot of time making sure that we allocate capital to the right place. To your earlier question, we are doing a complete analysis of the portfolio to make sure that we invest where we need to invest. Similarly with capital expenditures, trying to invest in not only infrastructure, but enablers of growth. That is our main priority. To the extent we find some assets out there that could be complementary to what we have, we will always explore that. We are very comfortable with our capital structure. We have a good, solid financial position, and our expectation is to continue to manage the balance sheet in a very prudent way. And later on, once we have the scale that we're building, moving at the right speed with the right connectivity internally, we would be in a better position to contemplate bigger transactions over time.

In portfolio pruning, you kind of [indiscernible]

No, we're not done portfolio pruning. I mean it's -- again, one of the benefits of having a new CFO, you can have the conversations. And if -- it's really interesting, if people have been coming to this conference for a long period of time, the big pharma companies 20 years ago are still the big pharma companies, the big med device companies are still the big med device companies, yet the portfolio that they're actually working with today is dramatically different. And one of the challenges historically at Dentsply Sirona was that there was never anything that was going to be shed. And the fact that we're able to deliver 4 is a discipline that was long overdue. And one of the things that Jorge and I are now working on is we think there's other things in the portfolio that we need to adjust because just like you said, if we get a world-class commercial engine, we want that focused on innovation. That means some of the things that in our opinion where you can't see a clear path to a KOL, you can't -- it's dilutive from a growth and a margin perspective, and it's in danger of being commoditized that we -- and we don't think we can innovate around it, and we're drawing a line right now. And there's -- but they're -- my preference, given the scale we have, is to find ways to innovate. But no, I would tell you, Tycho, you should expect consistent year-to-year pruning of what our portfolio looks like where it's our objective, is to whether innovate internal/external, to add margin accretive from -- margin accretive and growth accretive assets. That means some of the things that we've historically held onto needs to go. But again, as we've kind of come through the analysis that led to the restructuring, the 4 that we took out in 2019 led us to a process, which I believe will continue actually forever. But I would tell you in 2020, you guys should expect some more portfolio pruning as we go forward. It's just a better way for us to operate and make sure that we're staying relevant with the customer.

In the last minute or so, just comment on the path of 22% operating margin [indiscernible] 20% year-on-year as one that other [indiscernible] think about for this year? And then when we think about the leverage, you talk about supply chain integration and productivity initiatives, what do you kind of think about [indiscernible]

Yes. And Tycho, we want to be really careful because we obviously haven't finished 2019, and we're not telling you what we're doing in 2020. But we feel very, very good about the 20% and the 22%. And the reason in our mind was actually -- historically, we had a very high fixed cost structure and a very complex thing without innovation, without growth. Well, we think we've rationalized the organization. The benefits you will see from the centralization of these noncustomer-facing functions in the center of excellence, we believe, has a tail associated with it. And the -- Jorge used the word speed. In my mind, architecturally, we're now operating in the structure. We're just not operating as fast as we would like to. So look, we can get our cost structure down, really focusing on stuff that's critical to us, supply chain is a great example, I mean do we need to manufacture every single product we make? No. So we believe the evolution of that centralization of functions, coupled with growth and a much more rigorous approach to spending, has a very, very long benefit tail associated with it. But with that, again, thank you, everybody, for the time. It's -- we think it's been a solid year for us, and look forward to updating you next year.