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

Well, good afternoon, everybody. Thanks for being here for the anchor leg of the Second Wolfe Healthcare Conference. And hopefully, the first and Wolf Virtual Healthcare Conference. Pleasure here to have a couple of guys I consider old friends, Don Casey, John Sweeney from Dentsply Sirona. They are coming to us live from Charlotte. Thanks, guys for hopping on here.

Thanks, Steve.

Great to be here.

We've got about half an hour, a lot of ground to cover. I thought I might start, if it's okay with something of a current event. If you don't mind giving us just a little bit of reflection on what you learned here lately at the DS World event, always a big commercial event for Dentsply Sirona.

Yes. And Steve, first, we really appreciate the opportunity to come out and talk and appreciate the invitation to the conference. So thank you so much. I would agree with you that DS World has always been a major thing. A couple of things we've learned. First is being in Las Vegas is more fun than not being in Las Vegas. I mean that's -- you might think that was self-evident. But now DS World, it's -- first, we -- I couldn't be more thankful to our team. I'll give you some numbers, Steve, because we haven't been all that public about it because we now know DS World is still going on, but we've had over 4,000 participants. And it's interesting. We actually are getting dentists to pay us $299 to attend the virtual event. We've been seeing an excellent level of engagement. The number of dentists who have attended more than 1 training course or discussion has been very high. We've seen almost in excess of 60% viewage of -- we offered every single day, we'd offered a different live procedure. So we're seeing a really, really good response to that. The thing that we're working through right now is we think that we have put a number of incentives to -- one of the things that's great about DS World, there's a buzz, there's excitement. It's I should buy now. My down the street is buying now. It's hard to replicate it virtually. So we put some very strong incentives in, and we're working with both our dealer partners who's support has been terrific to really kind of drive some urgency around the end of the week. So DS World technically ends tomorrow, and we'll see where it all goes. We've been happy. Again, the absolute number, engagement has been good. We'll see what -- how sales look. Number of prospects to a number of prospects is not exactly comparable, but it's certainly -- a lot -- I mean, it's not quite comparable, but we feel there's certainly a number of prospects there. What we've been hearing from again, both our partners at Patterson and Schein, who, again, have been really terrific. They seem to be cautiously optimistic about the event, so we'll see. I mean Steve, if we are doing this next week, I'd probably be able to -- I'd either be gitty or I'd be having a gin and tonic here.

Well, it's hard to get tricks to lay down. Let's not lose perspective here?

I didn't mean to be endorsing a particular fast food chain.

Well, you could do worse. It could do worse. If we were to try to take a look at the event in an apples-to-apples way relative to what you've seen in prior years, is new leads, is that the right metric, quotes? What would be the best way to look at it?

Well, we look at it a couple of ways. I mean, first, we do aggregate attendance, number of prospects and then we do sales, and then we do leads. So we kind of boil that down. How we're looking at it now? Obviously, attendance is going to be different. Number of prospects -- again, we feel cautiously optimistic about that plus we just don't know yet, Steve. I mean, the interesting thing is if you're -- DS World typically is a Thursday, Friday, Saturday, and Saturday is the big day. So today and tomorrow are when we're asking all the attendees to go pencil down to get the maximum financing benefit from our dealer partners, and taking the One DS promotion that's associated specifically with DS World is about $5,000 better than what it will be next week. So we'll know a little bit more. I mean, I'm not trying to be vague about it. We just don't know.

Got it. That's fair, very fair. So before we think about things on the forward, I wonder if we could look backwards for a minute. 3Q for Dentsply Sirona, there were a lot of moving parts there, right? You had the DS World comp. There were some changes to promotions in terms of how you manage fields, inventory around the One DS initiative. Rest of World was tough. But in spite of all that, you've been really optimistic as you talk about what happened in 3Q at the retail level. And so I wonder if you could -- as you've had a chance to talk to investors and get a sense for how folks are thinking about it, if you could give us sort of an updated bridge just to make sure people sort of know how you're thinking about the number as reported on the revenue line versus the optimistic perspective that we've heard from you as it relates to the retail trend, which seems to be coming in the right direction.

Yes. It's interesting, Steve. So when we did -- it's a lot of work to do at quarter end and all that kind of fun stuff. And we sat there and said, okay, we're pretty comfortable with what retail look like and does retail equal wholesale, it doesn't. And retail was running better than wholesale. The second thing we said is, we were very excited about the margin. Now not all of that is sustainable, but we had always talked about 22% in 2022, and we got to a quarter where we saw that we were able to exceed that. Now I think we did a good job of saying, hey, we're not saying that all of that's sustainable. 2 other things that if you kind of track through what we were talking about in the quarter other than, okay, we were -- we feel good about retail. Margin is showing that we got control of the organization even in pandemic, that we're able to kind of protect the profitability of the business. But we also did -- our cash flow was very strong, both on an absolute cash basis, a free cash flow basis. And if you look at our aggregate inventory level, that actually has been down. I mean, we're tracking very, very well against what we were actually putting as a 2022, '23 kind of inventory number. We're kind of getting there now. All of that against a pandemic. So we thought the quarter was pretty good. Basically, the dialogue went, based on all the questions we got in, it's like, hey, guys, it looks like you're losing share on a retail basis. And why aren't you being more optimistic about Q4. So let's pull that apart. We get some syndicated data, Steve, in different categories, and this is what I'd tell you, look, and on the consumable side of the house, you hit the nail on the head. We, a year ago, decided to do a very, very focused transformation of our promotional activity. So in the U.S., very specifically, we said, look, we're going to put everything behind One DS, which is a dentist oriented promotion. So that means things that may be a little more retail become much more important to us. Have the rep go in to the dentist with One DS. That means we're not going to do quarter end buys. We're not going to do 2 for 1, where there might be an incentive to try and do something that would be more wholesale oriented in a quarter. It takes you about a year to kind of run through that because, look, we want to work with our dealer partners. It's incredibly important that it's not all of a sudden, one of us is going one way and the other is going the other way. So we kind of work through that. The U.S., in my opinion, is the best example of what that looks like when it's done. Where that's the place we started. That's -- and if you looked at Q3, and we're still -- we got about another quarter to get done. Q3, we were up 3% on the consumables side, which we said, okay, we think that looks about right. Then we said, okay, what else is going on? We're rolling that program through the rest of the world. So on top of the pandemic, you're going to see us try and get retail and wholesale to look a lot more like each other. Which has an impact in EMEA and then in Asia Pacific. The other thing that was going on in Rest of World for us and we've really -- obviously, we know the questions we're going to get asked. I mean, we read the same thing you guys do, what is Schein reporting, what is Envista reporting, what is the group reporting. Composition of those businesses are different. I mean, if you look at Invisalign, we do not have a clear aligner in China. So Rest of World, we didn't offer Rest of World consumables. We just said Rest of World. We don't have Primescan in China. So our composition of what our business looks like is a little bit different than what other people's businesses look like. So if you go apples-to-apples, take a category, restorative or take a category like endo or take a category like implants, we feel that we maintain share in some places, we may have been a little bit better, some places a little bit worse. But we felt that our retail performance looked a lot like everybody else's. Now jump into fourth quarter. I mean one of the -- there's benefits and problems of reporting late in the cycle. So one of the benefits is you see what everyone else says. One of the problems is, okay, you're now already -- you're going to be the first one to deal with the next round of shutdowns. So it was really funny when we did -- we were talking about Q4 and Q1 of last year, we were kind of the first people to see the pandemic hit because we were the first people to report when Asia had really gone down. So we were a little bit out of sync with everybody else because we reported 3 weeks later. And I'll tell you, what you heard from us is, we don't know what DS World is going to look like. I mean we were 3 weeks away from actually having the event, and we knew people are going to be signing up late. So we didn't know. We're working through a big comp. And again, I would love to say I could tell you to the nearest dozen units of how many Axeos we sell. We don't. We're very excited about what's going on, but we'll see. And then literally, as we're doing our earnings call, you get the notification that France, Sweden, U.K. are shutting down and 3 of the big areas in Germany were shutting down. So we said, hey, look, we're going to be a little cautious, because Steve, I would tell you, the track record of Dentsply Sirona prior to Q3 2018 was not great. And I want to be the company that's going to give you a very straight answer and we're going to try and meet or exceed. And right now, given th ambiguity around Q4, we said, we're going to be a little bit cautious. So hey, look, DS World is kind of coming in, we still have a big comp. We haven't seen -- one thing we can see and we can talk about, everybody who uses CEREC, gets plugged in. We can tell where CERECs are used all around the world. We haven't seen a big drop off around the world associated with different countries or like New York or Chicago shut down. We haven't seen a big drop-off on traffic or use of our equipment. And we haven't seen unlike the Q1 into Q2 where in April, everybody shut down. We haven't seen dentist office on the shutdown list. So again, if we reported 3 weeks after when we reported, we probably could have included that, and it's just when we report it. But DS World is going well. What an interesting learning for us, Steve? I mean, I'd tell you, a couple of people asked us, well, it's virtual. Wouldn't you see 20,000 people show up at DS World. We're like, no,no, no, we're actually going to charge people for it. But one of the things we've learned is the amount of content. We have over 150 CE Courses. We have Simon Sinek, who did a great job. I mean, if anyone had dropped on to see DS World, or John can get you into it. Just a great -- about The Infinite Game. I mean, the content has been great. The participation in terms of number of dentists who have attended more than 1 thing, radically exceeded our expectation. We figured they'd come in and do the opening, maybe they'd stay, what's the promotion and they go. Now they've really been participating. And now we've got several hundred hours of fresh content to put up on our site, and we can package that. And one of the things that we're really happy of, year-to-date, we're at 800,000 dentists, different dentists or other dental professionals have hit our site and taken a continuing education class. Compared to last year, that number was 400,000. And now we're about to double the amount of content coming out of DS World. So it's a really virtuous cycle. So look, if we don't exactly get the sales out of DS World. Look, our underlying demand, we're confident that we'll be able to -- but it's really transforming how we interact with the dentists.

Don, you covered a lot of ground there. I want to just try to put a pin in 1 thing that you touched on, and it's the One DS initiative. You've seen how this has played out in the Rest of World territories. It's fair to say that it takes about a year to sort of get through that implementation. And do you have any perspective on sort of a pre- and post, it's hard to do apples-to-apples, I know. But what's the One DS initiative in places where it's had time to mature, what it's meant for growth at the retail point.

Yes. And I'll tell you, Steve. So let me parse out a few things here, so I can use language precisely. So One DS is a promotion. And right now, the only -- we're only running that U.S. and Canada. We're in the process of rolling that around the world. The initiative to get retail -- very focused at the retail level. That's actually -- we bundled that into language, we would call sales force effective, is trends -- and how do we go with that. We're in the -- I would say U.S., where in the last -- the next quarter is the last quarter where we're trying to lap that. Rest of world, we're 6 months behind that. So I would say, I think that's a -- will be finished late Q1, early -- somewhere in Q2 on rolling -- what I would call getting retail to wholesale equal in terms of what revenue looks like. But in terms of what the activity is, that -- the running joke is the further you're away from Charlotte, the longer all of this takes because clearly, the telephones and these type of events are much slower in the rest of the world. But we're getting there. And I would tell you, Steve, I think total SFE, if you were to ask me 2018, what were we going to be able to get if we got SFE right, and I would have told you 100 basis points. We're ahead of that in terms of just -- and you can see it month in, month out, month in, month out, you can just see stuff where -- particularly where you haven't had a new product to kind of drive something, but you can kind of see what it's doing, and we feel pretty good about that. One other little reference point, Steve, to put a pin in on the thing you pin, the One DS promotion to us is really important. All of a sudden, people are saying, oh, you're giving us a lot of detail on SureSmile. Well, because we now have detail to give. One DS program a year ago in Las Vegas, we offered a $15,000 savings as part of the One DS program, if you bought $50,000 or $100,000 worth of technology and equipment, and you had to buy $5,000 in 2019, 2020 and 2021. Well, the easiest thing to do was just to buy SureSmile trial kits. And what we saw is we did a pretty good job on getting those. We were seeing a certain level of trial there. But all of a sudden, the pandemic hits, dentists had 4 to 5 weeks of almost a sabbatical. The number of people who contacted us, who wanted direct training around SureSmile, went up dramatically. And all of a sudden in Q3, we're starting to see -- and there's a couple of metrics that we look at. Number of CEREC doctors that are doing clear aligners, a number that are doing SureSmile, the number of CEREC doctors doing some form of clear aligner is a pretty good number. We're in early days here. But then we got to get them to an inflection point, where they do 3 -- they have to do 3 SureSmiles. If they do 3 SureSmiles, their confidence level goes up, we can almost discount that. And then the next inflection point, if you're Dr. Sweeney, and Dr. Sweeney did 3, well, Dr. Sweeney may have only been doing 12 to 15 cases a year -- once a month. Once we kind of get them to that third or fourth, they've done it. The amount of cases of clear aligners they do accelerate. It almost doubles. And so we got to get that -- the inflection point is, CEREC doctors into SureSmile, SureSmile trial to third, and then we get math, which is good, really positive math.