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

Good morning, everybody. I'm Tycho Peterson from the Life Science team. It's my pleasure to introduce our next company this morning, DENTSPLY SIRONA. Just a reminder, you can submit questions through the website. Now with that, let me turn it over to Don.

Thanks so much, Tycho, and thanks, everyone, for the time. As it's a self-guided presentation, I'll refer to pages as I kind of go through it. But again, welcome to DENTSPLY SIRONA. I just start off asking everyone to glance at our forward-looking statements, associated risks as we go forward, that give you a second to read through that. Today, what we'd like to discuss is our industry and company fundamentals. I'll talk a little bit about dentistry and why we believe X-ray is really well positioned, our progress we've made to date in a number of strategic areas and talk about some of the rework that we've done to build the company and then talk about what we're doing going forward. If you are not familiar with dental, why don't we start with some of the fundamentals, and that would be on Page 5 of our presentation. Oral health has been really important and has been recognized as more important than overall health, and there's a lot of reasons to believe that it will be a tailwind as we recognize study after study that continues to show that when you have got good oral health, it's a precursor to good overall health. The pandemic has really demonstrated that the industry is resilient. If you go back to where we were in Q2 of 2020, where the industry was effectively shut down, we believe the industry has come back. Is it exactly where it was in 2019? Depending on where you are around the world, but it's -- by and large, it's come back. And in many ways, there's been some learning from the pandemic that we believe will be positive tailwinds for DENTSPLY SIRONA going forward. Among those is when there was patient traffic, kind of a little bit lower than what they were used to, many dentists began to explore what could digital dentistry do to help them approach more complex cases, particularly in the aesthetic areas of clear aligners and implants. And as there were staff shortages as part of 2020 and even into 2021, the advantages of digital dentistry and the efficiency that it could create became very apparent. And the industry, by and large, has some very good fundamentals, demographics as people age, and that's going on all over the world. There tends to be a need for more dental care. We're seeing the rapid globalization of technology, and that's one of the things we're very proud of the DENTSPLY SIRONA. We have a strong R&D pipeline that we can globalize very, very quickly. And then demand for aesthetics, and we believe we're well positioned in some of those categories, like implants and clear aligners. And then we believe we have an opportunity to transform how digital dentistry is driven throughout the world. Moving to our Page 5 -- excuse me, Page 6 on this presentation, I just want to level set people on what DENTSPLY SIRONA looks like. We report in 2 segments, the Technology & Equipment segment, which includes things like our best-in-class CAD/CAM. I happen to have a Primescan right next to me in case people didn't know what that was. Our high-end imaging franchise in the 2D, 3D and CBCT areas has done very well. We've got critical mass in clear aligners. I'd point out in the second half of 2018 is when we really got in that business. And you can see it's now showing up as one of our larger franchises, and it certainly exposes us to a high-margin, high-growth area. And then implants is reported out as part of Technology & Equipment, and we're very happy with what the work we've been doing on our Implant business to overhaul that. We recently introduced what we believe is the first digital implant company. And by that, I mean integrated workflows from both an X-ray and intraoral scanning side, coupled with PrimeTaper, which we believe is an outstanding immediate load screw as well as really supporting technologies like Datum, which is a company we purchased, to give us a bone growth factor, and things like Atlantis, which is a custom abutment company. And we also have a strong value brand with MIS. Consumables, which tend to be more of the foundation of most dental offices, about 40% of our portfolio, they tend to be a more steady grower, less capital intensive. We believe it's essential for us to do well in consumables as that really forms the basis of virtually every workflow, and you will hear us talk a lot about workflows, but every single workflow finishes with a consumable. And 2 highlights here, Restorative, which is basically anything that goes with drilling and filling or putting things like a crown on, and Endodontics, which is a large profitable franchise, where we've seen significant innovation. If you move to Page 7, you can see how we break out regionally. We define Rest of World is basically Asia-Pacific and Latin America, the U.S. and Europe, roughly about the same size. But one of the advantages of the global footprint we put together is that we can pick up innovation and move it globally through a well-established commercial network throughout the world. Just some highlights as we go forward. The U.S. has done a really good job in terms of coming out with the OneDS promotion. That's a promotion where we ask customers to look at adding consumables to their technology and equipment purchases, and it gives them an advantage from a cost perspective, things like clinical accelerators, where we're actually working hard to train people in how digital dentistry could impact their practice, and things like DS Activate, which is a program where we actually sell equipment and sell training kind of at the same time. Europe, we are making excellent progress on many fronts, including we've just launched our Endo, our implant restages now into Europe, and we're very happy in 2021 with the progress we were making on SureSmile. And then the Rest of World, think about those some very, very significant markets, whether it's China, Brazil, places like Japan and Australia, are important to DENTSPLY SIRONA. If you look at Page 8, that's our pipeline that we've launched in the last 18 months. It's been a very productive 18 months from a software perspective. Our CEREC 5.2 basically takes a machine, and because the software is so powerful, think of this as almost like your Apple Watch, where it's going to go to a whole new generation. And this has been extremely well received because it actually dramatically improves the performance in terms of time and accuracy. Our SureSmile 7.6 software is very important in the clear aligner category. In fact, the -- our 7.6 is a real step-up. And our practitioners, who are using the product, really feel the user interface and the ease of use across the entire procedure works really well. We launched Axeos, which is a wide field of view, 3D CBCT product, and it's been terrific. We've had a very, very positive reception to that. And that balances off kind of our middle entry, which is our Orthophos line as well. I've mentioned our implant program, and we have underperformed the market in implants in 2018, '19 and into 2020. We feel this restage gives us an opportunity to capitalize on what DENTSPLY SIRONA does very well, which is starting with digital basis, on digital workflows, and I'll go into that a little bit more. But we're going to be what DENTSPLY SIRONA can be really a leader, and that is starting with digital workflows. We've got a great Atlantis business, which is a CAD/CAM custom abutment business. Our MIS value line has shown excellent progress. We're very happy with our acquisition around Datum, which is a bone growth factor. And I've mentioned our PrimeTaper launch. And moving to Endodontics. We launched the first major platform in close to 5 years, which is our ProTaper Ultimate line. And instead of launching strictly files, and by the way, these are terrific files that actually saves time and saves a number of files, but we're now looking to move into adjacencies in obturation as well as ceiling. This trifecta has been very well received in the market of the KOLs, and now it's moved into the endodontic space and high-performing GPs, who do a lot of endo work. SureSmile, we're very happy with the -- not only the software launch, but we've introduced VPro, which is a vibration technology, which can aid in comfort and speed of the clear aligner treatment process. And that's just in the last 18 months. Looking forward, while we're not going to detail a lot of things today, I would tell you that our pipeline coming out over the next 18 months, we're extremely excited about. If you move to our Slide 9, this is what we refer to as kind of our priorities and it's almost our strategy at a glance. We believe, again, that digitally-enhanced workflows are really important. By that, we mean how do you start with a CAD/CAM or an X-ray use treatment planning to really help do a better job of looking at how these complex cases should be managed between a specialist and the generalists or a generalists in a lab? How does that team work together? How do you give great patient outcomes? And where we believe there's digitally-enhanced workflows that we're advantaged, we list them as ortho, which is where clear aligners are, our Implant business, our Restorative business, where -- that's actually where a single-unit crowns and our new products, like Teserra, or things like digital dentures show up. And Endo, which is obviously endodontic and I just mentioned. It starts in our mind with a very large installed base. If you look at the fact that we have Schick, Orthophos, Galileos and Axeos, we believe we're a very strong player in the imaging market. Obviously, our CEREC and with the introduction of Primescan, we believe we're competitive not only in DI, but we're the leaders in chairside dentistry. So that's a big installed base. And once practitioners get comfortable using that installed base and the technology there, it becomes very sticky with those. I mentioned our R&D engine, which we're very proud of. We're committed long term to targeting 4% R&D spending because we believe that we've hit on a good formula of how to innovate and really focus on these digital workflows. And again, because we're global, we can pick up these innovations and quickly move them around the world to get scale. Moving to our Slide 10, the -- it's a very important slide for us because we're trying to really differentiate what analog dentistry versus digital dentistry looks like. The advantage of digital dentistry, if you think about diagnosis, it's basically you're doing it digitally. So you're creating a data stream that can be shared, whether that's with a specialist or with long-term AI and machine learning. The fact that you can literally have a conversation with a specialist looking at the same set of data, which is instantly translated. And that contrasts with where dentistry was 10 years ago, where you might be looking at physical models. We believe between Schick, Orthophos, Galileos, Axeos, with CEREC and Primescan, there's no company that offers as comprehensive approach to diagnosis, whether that's X-ray or scanning. Treatment planning is then how do you basically take that data? And rather than having a dentist work on something in the office, whether it's on a piece of paper or something or working back and forth of the lab. Basically, we can do this virtually and where a company or other experts can assist. And this treatment planning, when you begin to move it out of the dentist office where, say, something like a SureSmile, you transport images to us, we basically put that into Costa Rica, where we have a large treatment planning software group. And we are able to give the dentist very quickly a treatment plan. That allows the dentist to spend more time with the patient, whether that's activating the patient or providing therapy as opposed to seeing hours, where they're not actually creating revenue by providing treatment because they're off doing treatment planning. And then treatment delivery. As you begin to see more and more digital treatment going, the idea of custom abutment, custom implants, obviously the liners are customed, you really see that you're practicing dentistry at a higher level. So when we talk about digital dentistry transforming it, we believe the fact that you're going to see more sophisticated diagnosis, software that enables a dentist to approach a patient and activate the patient because they can see things, obviously, you can show a patient something right on a screen. And whether it allows them to approach something they haven't done, whether it's a single tooth implant, multi-tooth implant or root canal therapy, because you can provide guidelines and point-by-point training for that dentist, we believe digital dentistry is key. We have -- if you look at our Slide 11, this is a slide that we've used before, we do have a large installed base where you can see 400 million-plus X-rays taken. You can see the amount of intraoral scanning and the number of treatment planning cases that are done with some of our software like Sidexis and CEREC. So that's kind of our fundamentals and our strategy. If you move to Slide 13, we've been on a journey since late 2018 when we announced a comprehensive restructuring of DENTSPLY SIRONA with the objective of improving revenues and getting that growth to 4% to 5%, which is our target today, getting our margins, which at the time were in the mid -- in the mid-teens up to 22% in 2022, which we're comfortable saying we're going to achieve in the time that we set out, and simplifying the organization by generating between $200 million to $250 million in savings and driving headcount efficiencies of between 6% and 8%, all of which we've achieved. And as you can see, that allows us to deliver double-digit EPS. And we've delivered across all of these. If you look at our revenue improvement, our margin improvement, EPS improvement and operating cash flow, which, if you look at Page 14, Jorge Gomez and our team and across all DENTSPLY SIRONA, have really been focusing on generating and improving our cash flow performance. And you can see both on a percentage and an absolute basis, we've made significant progress in that cash generation, and we look forward to continuing that over time. Going forward, and again, if you want to follow along on our presentation, moving to Slide 16. We continue to believe that we're going to consistently and be able to deliver 4% to 5% growth. We believe that the margin will hit 22% in 2022, and then we will strategically deploy capital. As we talk about accelerating growth, whether it's through organic innovation, as we've outlined through R&D, some of the free cash flow could be deployed to doing acquisitions that might accelerate some of our strategic initiatives and continue to invest in areas like commercial excellence and other things that should allow us to deliver that 4% to 5% growth. We get asked all the time, is it 4 to 5? Is that at the top? Look, we aspire to delivering category-leading growth in many of the areas in which we compete. And we aspire to improve on 4 to 5, but we really feel that the journey we've been on, if you go back to where we were in 2018 and 2019, delivering the 4 to 5 has been an important milestone for the company to achieve. And as we look forward, going in terms of margin, there's a lot of conversation we have internally about how much margin accretion should there be versus growth. We tend to be biased towards focusing on growth, while looking if we can continue driving efficiencies. How do we invest that in growth? And I'd point out a few things. If you look at our capital deployed year-to-date through Q3, it's over $500 million, 70% of that's been growth, whether that's acquisitions, stuff like Datum or Propel. But we've also done share repo and dividend, and we expect to continue that. A statistic on that page, which people might not be aware of, since Q4 of 2018, we've returned approximately $750 million through share repo and -- excuse me, in total cash to shareholders since 2018. So just to summarize, look, we feel we've been on an important journey at DENTSPLY SIRONA. Our -- we believe that we've created a scaled efficient company that has very strong positions in most cases, either 1, 2 or 3, in really key areas that we believe will be high growth, high margin within the dental industry. We've spent a lot of time, talent and treasure building what we believe is a very scaled efficient organization. And whether you look at the improvements in R&D or our ability to drive commercial excellence on a global basis, we feel that we've created a growth engine here at DENTSPLY SIRONA. And as we look at '22 and beyond, we feel the industry fundamentals are strong. We feel that we are extremely well positioned in digital dentistry, and that we believe our broad global footprint allows us to learn from innovation and deploy our innovation very, very rapidly. And as such, we're excited about our future at DENTSPLY SIRONA. So with that, Tycho, I'll conclude my prepared remarks.

Great. Good presentation, Don. Thanks. Maybe just jumping into current market dynamic. Obviously, Omicron flaring up. Can you just talk on what you're seeing in the channel today?

Tycho, we're kind of in a quiet period. So I want to be careful about talking about Q4 or Q1. Obviously, our industry is affected by same things that every other industry is impacted by. I would say that some of the learning, though, that we saw a year ago at this time, if you look back in where we were in 2020, actually, a little bit more than a year ago, people have done a pretty good job. How are you going to manage infection, control? How do you keep the dental office open? How do you focus on higher value procedures, like clear aligners and implants as a way? By the way, Tycho, Jorge is joining us. So look, in general, we believe dentistry has proven to be pretty resilient.

Yes. 3Q, obviously, you had a little bit of noise around the DTC channel pressure, but you did kind of talk down some of the near-term targets. Can you maybe just talk on what you've learned coming out of 3Q on that channel? And how you're thinking about Byte going forward?

Yes. Tycho, and if you indulge me for a second on just clear aligners in general. One of the charts we showed is actually what were orthodontics, which is the vast majority of that is clear aligners fits in our franchise. We went from 0 to -- we're targeting $300 million kind of in this time period around clear aligners. And we believe that was critical for 2 reasons. First, we want exposure to our higher value, high-growth category, like clear aligners, Part 1. Part 2 is we really feel part of what dentists are going to be deciding when they make digital dentistry decisions and digital diagnosis decisions about, do I want a Primescan and do I want an Axeos is going to be based off the ecosystem that we have. And the ecosystem, in our mind, is benefited from the fact we've got a great implant business, and now we've got a great clear aligner business. What Byte did for us and why we are less concerned quarter-to-quarter is how the DTC market playing out was it gave us critical mass. And by that, we're in the process of pulling Byte, which is twice as large as SureSmile, or approximately twice as large as SureSmile. And we're putting that on our manufacturing. We now have a scaled R&D organization where if you look at something like VPro, which we're launching on SureSmile, that actually came from Byte. As you look at where we go with whitening and other critical technologies and treatment planning, we're now doing that on scale. And then when we bought Byte, they had a treatment planning center group. That's the people actually developed the treatment plant in Costa Rica, there's one on SureSmile. You combine those over time, and again, you're operating on a single treatment plan with a single center, you create scale. So in our mind, that scale. As we look at Byte -- there's been some changes in the marketplace, obviously, with the Apple iOS privacy change. There's been some challenges in terms of how you target and that obviously created some noise around the discussion. And people seem to be very focused on quarter -- month-to-month, scrapes and whatnot. I would just tell you this, we believe that Byte will be an important part of our growth plan for a couple of reasons. First, we think that we can change the mix of how Byte has operated. We thought of that a year ago when we bought it to be a little less reliant on social media and more reliant on search engine optimization, part one. We believe that new products is going to be an important part of that, and we have a good pipeline coming across our clear aligner franchise. We are going to globalize Byte. If you look at places like Brazil and China and others, you're seeing the DTC space grow very, very quickly, and where -- we believe we're going to be able to take Byte because we have a scaled asset and move that around the world if the market tends to be a little bit more DTC and not. And just the last point I'd clarify, even if the DTC side doesn't grow as fast as the direct to dentist side, if you say that's -- the direct to dentist side might be 20 plus. And if the DTC side comes below that, supposed it comes into the mid-teens, it's still faster growing than virtually any category that we compete in. So in terms of our ability to participate in a category that offers attractive growth rates over time, we feel Byte is an important part of that.

I mean, I guess, if we were to go out 3 to 5 years, if you think Byte is still larger than SureSmile? Or do you think SureSmile becomes a more dominant product within the clear aligner channel?

That's a great question, Tycho. It's -- we're almost indifferent as to which way that goes. Our -- I would tell you that some of the fastest-growing markets tend to be the DTC side. Obviously, SureSmile has made real progress. At this point, we're probably in 10 countries around the world. We look forward to moving that into probably 15 to 20. Byte right now is basically only in the U.S. and Australia, and we have an opportunity to push that out. So the pace of that global expansion is probably going to ride that. But our thought process is, we believe we created a portfolio that lets us approach a market, which we -- and by the way, we think clear aligners is still early days in terms of the application of that technology and penetration, we think, is under 10%. So we want to be able to -- okay, if the market develops as a DTC side, we want to play. And if it's going to grow on the direct to dentist side, we're fine with that.

And are you guys committed to kind of transparency in that business? Like will you guide for clear aligners in 2022? Or was that kind of a one-off in '21?

We'll get there in 6 weeks, Tycho. And look, one of the things we consistently hear from our investors is we want to try and provide a little bit more transparency because our business is hard to understand. I mean -- and the chart we put together here, where we're starting to show, how do we think about these digital workflows is kind of a step toward that direction. Whether we get to the point of guiding specifically to -- this is how big instruments is or something like that, it's less relevant to us and we think less relevant to how you should be evaluating DENTSPLY SIRONA than showing our priorities and what kind of benchmarks we're achieving on those priorities. So we'll give you more detail on the priority areas, whether we guide to an SBU or not, not a decision we've made.

You've had good growth in Technology & Equipment, right? I mean you're up 25% organic in the third quarter or obviously, comps help there. But talk a little bit about where you're seeing the strongest growth on the T&E side? And then which areas are still kind of lagging?

Yes. I would tell you, Tycho, is that we've been really happy with CAD/CAM. Our CAD/CAM business is, if you look, we've kind of evolved with that, just in terms of -- we used to be just full chairside. And now with the -- as we have a DI product and introducing things like mill, we've been very happy with that. If you look at clear aligners, obviously, it's off a small base, but that's been growing, and we're very, very happy with that. Our imaging business has really come back. If you look at where we might have been 3 years ago, 4 years ago, where we were trying to compete against too broad a framework, we've really focused on high-end, things like 3D CBCT, where Sydexis is going to make a difference. I would tell you that's what's gets us excited. Some areas like treatment centers and instruments tend to be -- people have been investing more in like high-tech digital than kind of a little bit more of the mundane technology and equipment.

Yes. And then maybe we could just spend a minute on the implant reboot strategy. I mean you talked about digital workflows, leveraging Atlantis. You talked about leveraging Datum. I mean talk about how, I guess, externally, we can kind of track success of that reboot strategy?

Sure, Tycho. We'll -- as we get into '22, we'll provide a little bit more detail on how we look at what we're measuring. Here's what I'd tell you about where we are on implants. Look, we rolled it out in very late third quarter. But it was great that we had all our KOLs in North America. We're able to start seeing some growth on implants in part because we're out making noise. We -- in the fourth quarter, we rolled that out to Europe, and we're in the process of completing that rollout. And where we are in certain areas in Asia, some places like China, it takes a little longer to go through the regulatory pathway. We're very happy with how the PrimeTaper portion of that is performing. What we're hearing from the dentists that are using it. It performs extremely well. It's a procedure that they understand. They've -- we feel it is highly competitive, and I would stack that up against [ BLS or N-One ] because we feel the features and the benefits that we offer are significant. Things like Atlantis, if you look at the MIS portion, which is our value business, which is a significant part of our implant business, Atlantis and Datum, they've been growing at above category levels. And we feel that will continue in the future. And basically, what we felt was we were not as competitive as we needed to be in the premium immediate load screw area. We've kind of checked that box. And where -- in North America, we've got a little bit more data. It's tracking where we thought it would be. And we're very optimistic that this is going to, over the next 2 years, Tycho, get us from I think we're losing share. And I go public about this. I think we were losing share in '19 and '20. And I really think this puts us in a position where we'd like to be outpacing the category within 2 years.

And are you able to remind us that your split value versus premium for implants?

I don't think we've broken that out. We're still -- premium is significantly bigger than the value segment. But the value segment -- again, people -- MIS tends to be a little bit more of an ex-U.S. brand. So you don't quite see as much of it here. But no, MIS is growing rapidly. We're very -- it's growing above category levels.

And I guess, how much should we be focused on innovation on the implant side? I mean are you taking up R&D? Are we going to see kind of a whole new suite of product rollout over the next couple of years?

You will. We feel very good about our pipeline. PrimeTaper was not a one-and-done for us. And things -- and Tycho, I brought all the toys. I brought a Primescan, not that I'm going to scan anybody, but stuff like digital dentures where you can do a post and for through our Atlantis things and whatnot. We're excited that our innovation is now focusing on, okay, we filled some gaps. But now how do we take procedures that things like in dental is where you're going to do a full upper arch or full lower arch? And how do we combine the digital technologies with things that we do uniquely well? And again, you'll see a pretty broad portfolio. Because if you look at with an implant, whether it's in dental, multi tooth, single tooth, whether it's you're doing repair work and bone growth factors, whether you need to go back in and clean something up with a custom abutment, we feel we've got a very effective portfolio to deliver against that, and we'll innovate in each of those segments.

Got it. Since you mentioned Primescan, can you just talk a little bit about where we are in the cycle? It's been out a couple of years. And to what degree that's still catalyzing incremental CEREC placements?

A couple of things, Tycho. First, remember, Primemill is reported out in there. So mill has provided a -- and we're in very early stages. Obviously, we launched mill heading right into COVID. So that kind of put that a year later than what you would normally see. But CAD/CAM is -- we're excited about it. And I would say there's something different going on, Tycho, because you've followed us for a long time. I mean, obviously, is where are you on the next CEREC, and where are you on chairside? What's the penetration? And how many of the dentists have converted from one thing to the other? Really, what's going on in the category is that scanners have become kind of a utility tool. And that if you think about scanning, if I picked up this scan right here, I can send it to a specialist, so I can send it to my lab. And all of a sudden, you've got like Glidewell, NDX, DDS and other these labs, basically asking their dentists to start scanning things and sending electronically. When you start doing things, like if you're a general practitioner, looking at doing implants and literally, we can send you a treatment plan built off CEREC, it's kind of changing the dynamics. So first, you're seeing a pretty sharp acceleration of -- North America is leading the pack right now of DI becoming a standard within the dental office, part 1. Part 2 is we really think it's going to be how are dentists making those decisions? Do you want to go with a closed system that's really optimized for one workflow, say, clear aligners? Or do you want a really versatile scanner that offers outstanding performance, but they can do clear aligners, implants and it can go all the way up to chairside? So we think the ecosystem characteristics of being complete and open are going to be critical to us because the market has really gone from -- is a chairside? Is it DI? No, you need a scanner now because the labs and specialists who your teammates are really demanding it.

And maybe a couple of follow-ups there. What's your view of overall intraoral scanner market in terms of penetration? And then there's been a fair amount of M&A recently, right? Envista just picked up the Carestream business. So do any of these kind of change your view on competitive dynamics?

We think in pure-play intraoral scanners, Tycho. If you look at a global number, we think it's still below 30%, but you could probably frame that 25% to 35%. In terms of what Envista, obviously, we'll let Amir describe what he did. But that product has been out in the market. So it's not as if, oh okay, there's a brand-new competitor there. It's a product that's well understood, and it's going to be marketed by somebody else. I do think it validates, in some cases, what we've been talking about that, Tycho, because, look, we're the largest scaled company that's got X-ray and intraoral scanning. And if you look at where we expect software and services to develop over time, having both of those and putting that on a common user interface and have that user interface be able to address things like clear aligners, implants and other things, that's kind of the new slide we put in there today. You can see why we think it's really important to have both of those build it off a common software platform that really will enable bigger data lakes, more AI, more machine learning and easier clicking back and forth between those technologies between the dentist and a lab and a specialist.

Curious if you could touch on the pricing environment. We did hear Henry Schein mentioned pricing pressure on equipment recently. What are you kind of seeing on the pricing side?

Jorge, you got that one?

Yes. Tycho, I can start off. From our perspective, as we indicated last quarter, we put through a price increase that was planned. It was what we normally do for a number of categories. The reception in the marketplace was, as we expected. Meaning, there was no challenges there. We have a plan to do a rollout of these price increases throughout the year and through regions and by product category. The first wave was in October. Obviously, the inflation pressures and just concerns about pricing in general in the marketplace, frankly, creates an opportunity for manufacturers, including ourselves and many other companies, to be proactive on the pricing side and, not only active, but react in a very -- on a real-time basis. And this is something we're watching, we're monitoring. We want to make sure that we balance short-term and long-term relationships and profitability. But the inflation concerns are real. And this is a lever that can help us offset that or hopefully more than offset that and create some incremental value for us. It changes, is different by country, by category, in some areas, really hard to take prices up in other places or regions or products is just the norm. And so we are -- we have a centralized strategic pricing team that is watching out these things. They are doing a lot of analytics and making sure that we would consider all the variables, price elasticity and things like that. So it is -- I think we're becoming very active in that space and more coordinated globally.

Yes.

Yes. It's a slightly different question that I was asking was more on pricing pressure, right, because Henry Schein mentioned pricing pressure in equipment recently. So I'm just curious if you're seeing anything in the market on more pricing pressure?

Obviously, the markets are competitive. If you look at like X-ray and CAD/CAM, they're competitive. But we really believe that we're selling higher end stuff. And we believe the premiums that we're getting on CAD/CAM and our X-rays are deserved by the performance that we provide. So I would just say we haven't seen it.

Okay. Don, your comment on margins beyond 2022, I mean you're balancing reinvestment growing the top line. I guess what's the high-level message you want us to take your committed to margin expansion? Or you're willing to sacrifice margin to reinvest?

I would say we're going to have a bias toward growth, Tycho. So look, do we think there's opportunities to improve the margin over time? Yes. But we're probably not going to be marching at the same clip that we have because we think the opportunity to create value for the shareholders is more on the growing revenue side of the house than trying to push margins up. So it's -- if you -- and again, you know us pretty well. If you look at where we were in '18 to where we were in '22, we've been at a pretty aggressive margin clip. We think there's opportunities for efficiency in the organization, but we'll probably be biased toward reinvesting versus driving margins at the same pace that we have. We'll look to improve margins over time. But if we can get our growth rate significantly above where it is today, there's obviously efficiencies that flow to the P&L that would have benefits on the margin side.

And Don, do you want to spend a minute on capital deployment, M&A? How you're kind of thinking about the current environment? What the funnel looks like and maybe priority areas?

Yes. We don't have a new story on our capital deployment. I mean our first priority is how do we do innovation. And if you look at the chart we actually provided in our presentation, we're doing organic growth and then inorganic growth. We've deployed on capital this year on acquisitions, data and some other small documents. The other thing that we're spending money on, Tycho, is we run a pretty big global manufacturing organization. So we're going to spend $150 million, $160 million in capital to update that. And that number may move over time because as we get more software intensive, that's something that would show up in spend as potential capital. And then we're committed. We're not going to sit on cash. I mean, first, I do want to congratulate Jorge and his team, they've done a good job on improving our cash generation capabilities. But I think you'd probably be surprised if you look at total return to shareholders since late '18 of over 500 -- excuse me, close to $750 million. It's -- we're not going to sit on cash, we're going to return it back to shareholders. But our bias right now, and if you were going to ask me what is the one message, Tycho, is, look, we've got through the restructuring. And we think we've done a pretty good job creating a scaled company. The entire focus of our activity right now is how do we continue accelerating top line growth as a way of creating value for our shareholders.

I want to follow up because I got a couple of questions coming in on back to margins for a minute. Should we expect to see a new long-range framework for margins post 2022? Or is that something you'll just do annually?

Jorge, do you want to take that one?

We are in the process of developing and finalizing our internal long-term targets, financial targets, similar to what we did back in 2018. And I think it's highly likely that sometime this year, we will communicate what the new long-term financial targets are. This conversation we just had about a trade-off between margins and top line growth. That is an equation that we're trying to figure out what is in the best interest of our shareholders to -- how to balance that. And as we kind of finalize that analysis, then we'll share with all of you, hey, these are our views for the next few years, how we plan to target the top line, how we balance margins. And also to your earlier question about capital deployment, that also ties to our views on how we're going to return cash to shareholders and things like that. So I think stay tune sometime this year, we will refresh those. And it may not look exactly the same way we did it last time, but it's going to have a similar flavor that hopefully gives a good milestones for investors to measure how we create value for our shareholders.

Perfect. We're out of time. So I think we're going to leave it at that. Good to see you guys, and we'll talk to you soon.

Thanks so much, Tycho.