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

Hi, everybody. Thank you so much for joining us this afternoon on the East Coast or good morning to people form the West. I'm Elizabeth Anderson. I'm the health care technology and distribution analyst here at Evercore. And I'm very excited to be joined by Dentsply's new management team. We have Simon, the new CEO; Glenn, the new CFO; and Andrea Daley, who many of you haven't met before. Maybe just as a quick side since many people have not met Simon and Glenn. Would you guys just -- do you want to just say a couple of words and introduce yourselves?

Sure, I'd be happy to. Thanks for the opportunity. So Simon Campion joined in September. Previously, at [indiscernible] 4 years as the Head of the Medical and Interventional segments. And prior to that, I ran the surgery business for C. R. Bard, having joined them in 2008, and I've worked in France, Germany, U.S. and Canada in my career.

Thanks, Simon. Glenn Coleman, Chief Financial Officer, started in September as well. I spent the prior 8 years at Integra LifeSciences, so med-device company, largely focused in neurosurgery and Advanced Wound Care. I was Chief Operating Officer for 3 of the years, 5 years as Chief Financial Officer and also oversaw our commercial operations outside the U.S., spent part of that 6 years at Curtiss-Wright Corporation, 10 years at Alcatel-Lucent in various finance executive roles and 8 years at PricewaterhouseCoopers.

Sounds good. No, thank you, guys, for that. Maybe just to kick it off with the sort of macro perspective because that seems to be the topic du jour every day in dental unfortunately right now. Can you talk about sort of how you guys are seeing the broader dental landscape? I know there's been sort of mixed commentary from the U.S. versus Europe versus elsewhere, but it would be helpful to get your perspective there.

Sure. I think overall, pretty stable and consistent with what we saw in the third quarter overall. U.S business is stable. Europe seems to be continuing -- continue to perform well in spite of some recessionary pressures, but we are seeing some pretty good performance out of Europe. China continues to be a challenging market to say the least, between the lockdowns that are taking place, VBP. So obviously, that's been a headwind for us all year, and we're continuing to see that as a headwind in the fourth quarter. So overall, I would just say nothing really new relative to any change in trends in our business. And what we've seen for most of the year so far is continuing here in the fourth quarter.

Got it. Okay. Well, same news is good news. I think in respected dental right now. Okay. Can you talk about sort of how you guys are seeing the demand for equipment? Obviously, intraoral scanners and other -- remained relatively underpenetrated from a broader market perspective. Are you guys seeing sort of that and then also some of your larger scale sort of equipment outlook?

I would say that we're -- we've been pleased broadly speaking, but some aspects of our performance in those spaces. We feel that our scanners in particular have a lot to offer. I think we have robust plans moving forward on those bases. And the fact that we have the chairside, the mills and the printers available now all linked up to DS Core, which we feel is going to be a vehicle for driving further growth in the future puts us in a pretty strong position. And when we align that with our full portfolio offering, we think that we are in a robust position moving forward, and then Glenn and my focus over the past number of weeks has been setting the organization up for sustained execution across all facets of the organization.

Yes, I would just add, some of the larger equipment like imaging as an example, we're seeing good demand. But keep in mind, it's been an area of supply challenge for us. So even though we put up some growth in the third quarter, numbers would have been better had we had unlimited supply. So while demand is good, the revenue is not showing it all the way through yet until we get better on the supply side, especially when you talk about imaging equipment.

Got it. And what are your current expectations just in terms of to see some relief in that supply chain constraint?.

I would expect it's going to be with us for at least a couple more quarters from what I see right now.

Okay. Got it. And maybe just to pivit back to something that Simon was talking about. Simon when you talk about the DS Core, I feel like that's something that has it made it out there in terms of sort of the impact that, that can have on the business, whether from equipment sales or maybe increase in consumable flow. Can you talk about that as a product opportunity and what you're seeing there?

Yes. Listen, we think it's a significant opportunity for us. The fact that all our equipment can now be integrated under one software house. And we -- I think, more importantly, the flexibility that it confers to our end customers, the dental practices is significant, especially as you consider the presence of DSOs and the interoperability that we feel they will be seeking in their capital and software pieces. In fact, in that vein, we've already taken a number of actions with respect to North America, and we have already commenced investment in the commercial teams, including in the teams that serve these DSO organizations as well. So we have been acting with a high sense of urgency since we arrived here in mid- to late September.

Got it. No, that makes sense. And just from a purely like operational list, is there a way that like -- does somebody get sort of -- is that something somebody has to upgrade to? Is it something that if I just have certain pieces of equipment, I get automatically, how does that work?

There are upgrades that are required on some of the capital pieces for sure. Yes, it's not -- you don't download the software and it works.

Got it. And is there any sort of pull-through on the consumable side or it's functionally mostly on the -- for the equipment side?

Well, listen, we think we should be getting pull through on our consumables irrespective of DS Core that the enabler is the piece of capital in and of itself, and it has been a topic of much discussion with our commercial leaders globally, but in particular, our commercial leaders in the U.S.

Got it. Okay. That makes sense. Maybe to sort of transition to different parts of your business, one business that's obviously provided a little bit more maybe excitement over the past year than we were hoping for was sort of the Byte business. How do you think that you're coming in until you look at this business? Are there any changes you can sort of implement now that could operate that business differently, whether that's from like an integration perspective because that business has always run fairly separately from the -- when I think of as like the core Dentsply Sirona business or any other kind of opportunities that you think are exciting going forward?

Well, let me start by saying, firstly, we think that Byte can be an integral and important part of our portfolio moving forward. Coming back to the consumables and capital piece, we're full line as it were from East to West on that access. And we believe that we can be -- we can serve our customers in a number of different ways, too, whether it's direct to patient or via their dental practitioners. . And secondly, our aligner business has performed pretty well this past year, where SureSmile or Byte remains an underpenetrated market for us. So I forgot the expression you used, it certainly has got our attention too, but we feel it's an integral part of our portfolio moving forward. And we have to figure out in a more meaningful way, how to drive more conversions, how to reduce the cost to acquire customers et cetera, et cetera. And so we have -- as we move into 2023, it is a key focus for management and the team that runs Byte and SureSmile to ensure we get more value out of that particular part of our business.

Elizabeth, I would just say to highlight some of the things that Simon said. I think we've seen really strong sequential growth in different parts of our aligner business both Byte and SureSmile year-over-year, double-digit growth in SureSmile. Each of the quarters as we saw that in the past quarter with just Byte alone as well. So we're feeling good about the momentum we have. I think the key for us, though, is -- the revenue opportunity is clearly there. How do we make this so it's not dilutive to our operating margins from an overall ortho business perspective. And we're looking at ways to do that in terms of how to improve conversion rates, which is the key here and getting those conversion rates higher. We get an impression sent to a potential customer and then converting that to actual revenue and getting that to a much higher rate is key for us. And then how we can leverage the SureSmile and Byte platforms and infrastructure. So to your point, today, they're very separate. Are there opportunities to leverage some of the infrastructure and resources you have between the 2 businesses. So those are the things that we're looking at. But Simon's point, is it an underpenetrated market, probably the fastest-growing area of dental as we know. And so our intent is to continue to be a key player here.

Got it. No, that makes sense. And then on the SureSmile business, broadly speaking, how are you seeing continued uptake trends there. Are you sort of like -- is there any particular dental segment that you would say has been sort of a main driver of that growth this year? And how are you kind of sort of positioning. Any changes in terms of how you're positioning that service.

I think first and foremost, we're seeing really good progress for SureSmile. We're seeing geographic expansion opportunities. So we are growing very nicely outside the U.S., which is great to see. So I think that's going to be a key driver of our growth as we move forward. But I think it's the GP side as where we're making really good traction right now.

Got it. And can you remind us what geographies you're in for SureSmile? .

So U.S., Europe and certain parts of Asia, but we're not everywhere yet in Asia as an example. So we don't really have an aligners business in China, for example.

Okay. Could be a benefit right now. That makes sense. Okay. As we think about maybe another sort of new product area that you has obviously gotten a bunch of attention recently is around the implant side. How is sort of the ProTaper in terms of -- we've seen sort of good receptivity of that. How do you kind of think about that and sort of any kind of portfolio needs that you have on the implant business generally?

Well, I think on our portfolio as a whole, we're pretty pleased with where we sit in general with our portfolio. I think we -- our technology stacks up pretty well versus our competitors. And the interoperability of implants and our X-ray machines and printers and so on is pretty robust. One of the projects that we have kicked off that we have -- we shared at the earnings call was the winning portfolio and SKU rationalization. So we feel that we have opportunity not just in aligners or not just in implants or other but elsewhere in our portfolio have a more meaningful portfolio that can help us invest in certain areas that we want to double down on is one of those areas implants. We wouldn't share that for obvious reasons. But for sure, we intend -- we've already commenced the work to look at where we invest our money, where our sales teams are focused, how they're compensated to ensure that we drive the business forward in the ways we want to drive the business forward and in the ways that differentiate us versus our competitors.

And we have the full breadth of portfolio. We have premium products. We have value products, and we also have bone regeneration products. So we serve the game. Let me just say, if you look at the performance of the implants business, we actually did quite well across the globe, excluding China. So I think China kind of masked some of the overall performance because we saw growth in the U.S. We saw a growth in Europe and even in Asia when you exclude China. But obviously, China was a big headwind for us. And so when you look at the overall numbers, it didn't put up growth globally. But I think you kind of have to look at positives here and say, yes, excluding China, we actually did quite well in the quarter, as an example.

got it. So do you see sort of, in general, like SBU maybe excluding some of the macro impacts, you guys should return to sort of more market growth sort of by 2023 or 2024. Is that kind of the goal with that? Or am I thinking about that incorrectly?

I don't think we've set any expectations yet for 2023. So I don't think we're going to say what our growth looks like for next year. Only to say that, obviously, a big part of the headwinds have been 2 areas. China being one, I'm not sure when China starts to return to stability and actually getting back to growth. But right now, it's still a big headwind for us. And then in the U.S., it's been an area of decline for us. I think we've taken the right steps forward to get the U.S. business back on a growth trajectory. And so we've changed some of the go-to-market strategy and how our sales force is structured in the U.S. I think that's going to help a lot. We've changed our sales commission plans and we provided a significant amount of investment to add resources, both on the direct selling side and also covering the DSOs. And so from my perspective, the areas that we can control I think we've done the right things to get the business into a better path forward on the U.S. side. China is more macro. So let's see how that turns. But on the whole, I think our view is over time, we're going to show continued improvement year-over-year.

Got it. No, that makes sense. If we think about the sort of specific China issue, do you think that's in the sort of the way you're currently framing that market? Is that more of a results in like pause ahead of VBP on the implant side? Do you think that's a result of more kind of like the COVID situation in China? How are you thinking about that currently? .

Yes, it's a good question. I think, obviously, COVID has had a big impact. And what we saw in the third quarter was a lot of our dealers stopped ordering knowing that VBP was coming. So even though it didn't happen until the fourth quarter, basically, they said we're not going to take any more product until we see what the new pricing structure looks like. And so we did see an impact from a volume perspective in Q3. And then as we go forward, obviously, we're going to be taking a price haircut. We saw the implants business, which is the business impacted by VBP to be roughly, call it, $40 million to $45 million from a size point of view, and then you can kind of figure out, well, 30% haircut plus or minus is probably a $12 million to $15 million impact on our business from a pricing perspective. But the question is going to be how much [ customer ] we cover in volume, right? Because as you open up now more access, more patients coming through, can you get most of that back to volume. I think our answer is we think we can certainly get a big part of it back, but the timing of which is still uncertain. And so that's how we kind of see China right now.

Got it. And what's your current expectation for the implementation of VBP? I know this is something that's a little bit in flux. So...

I don't know if we have an expectation only that we are planning for a reduction in pricing and taking the appropriate measures relative to what that means to our business.

Got it. And are there any offsets -- I think you just obviously talked about the biggest offset opportunity is clearly like an increase in demand. But on the cost side, is there anything that you can do sort of on that side to offset part of that impact? Or is it really just mostly a demand situation? .

We're looking at -- as we said on the earnings call, we've already commenced a number of reviews of the organization and our portfolio, and we expect to be in a better position to share some actual facts and figures with you all come the February earnings call, the Q4 earnings call in February. But for sure, we are looking at our efficiency of our organization, how we're structured and where we do business with a heightened sense of urgency.

Okay. Got it. I was specifically talking about China, but I get your point in making in terms of it's a broader company-wide kind of conversations. That makes perfect sense. Okay. Can you talk about the traction you're seeing with the Primeprint product? I mean that seems to be one area of continued interest on the 3D printing side. Who have been the early adopters there? Is it sort of current X-ray customers inside your ecosystem, private practice, DSOs, something like that? And what kinds of products are they mostly focused on at the moment?

Yes. So we've had really good and robust feedback on Primeprint. It's seen as a high quality, and it's well designed. And the high degree of automation is really resonating with our customers. I would say it's been off to the fastest start in the U.S. and Canada. . And right now, with primarily GPs, who've been using CEREC in the past who are picking up on this. And primarily, it's -- we're working with the distribution partners and getting -- I would classify as strong traction. It's a focus on new product launches as has always been something that appeals to me greatly. If you need to get off to a robust and fast start, I think we've got off to a solid start here with this highly differentiated platform.

Yes. And I think that makes sense. I mean, how have you guys -- what's the feedback been about pricing? Because we've heard obviously the price comes in at a bit of a premium versus some of the competitors currently out there in the market. But to your point, like -- it's not like CEREC is the cheapest intraoral scanner -- billing system out there either. Like are people sort of willing to accept that this is a differentiated product in there? Are you getting pushed back on the pricing at all?

So far, there's been pretty decent acceptance of how we've positioned and priced this. Obviously, they need to -- the customers want to see the value it generates for them. And that's been a focus of our sales and marketing team to make sure that our team is in a position to illustrate the value that it can deliver to our customers. That's been a key focus for them.

Got it. And I think in a couple of your answers so far, you've talked about sort of the restructuring of the sales force. Can you talk about how that's playing out as you implemented that -- those changes? And then maybe specifically, how you're sort of changing the incentive structures for the sales team?

Yes. So let me start and perhaps Glenn can jump in here in a second. But as we said or alluded to, we've been happy with performance in Europe, lat Am and APAC ,ex China. China has been the headwind in APAC. Our focus has been robustly on North American performance, North American structure. And so we've already made the decision to invest in excess of 50 heads and realign our sales teams. Our commission plans are in the process of being readjusted. And they will -- we will pay people that deliver growth on our sales team in the U.S. So far We have many sales managers in this building this week for additional training. And I would say that the changes that are in process right now are resonating with them. The prior, what should we say, structure or experiments did not really resonate with them in terms of how they could do their job and the knowledge that needed to be far and wide across the organization to sell to a GP. And so it's resonating with them, and they are -- they feel they're in a good spot to begin to reengage in a meaningful way with customers in the field in the U.S.

Got it. And in terms of those 50 heads that you just talked about investing, how far through that are you in terms of hiring? .

All the recruitment processes have kicked off. We gave the go-ahead for that 3 or 4 weeks ago. So obviously, in this environment, it takes a while to get ahead, but we've allocated the funding to go and get them as fast as we can.

I think one of the other big changes, Elizabeth, you mentioned the sales comp plan, I think we are really focused on making sure we're paying our sales reps on growth versus just getting revenue dollars through the door. And so that's a big change that we're making. And obviously, we want to make sure people are rewarded and can have significant upside if they actually grow their businesses. So that's one of the big changes. And I would just say, as we talk about these changes, you hear investment, investment, investment, we've made a commitment that while we have to make investments in the business that are right long-term decisions for the company. There's not going to be an increase in OpEx. We're going to find offsets in other parts of the organization to fund those investments.

Got it. And as we think about conceptually what those offsets could be, like where do you see the biggest opportunities for that?

Our corporate functions. And we've got specific plans function by function, and I'm not going to take you through those today. But I would just say that's the main part of it, along with certain support functions that are not direct selling resources on the commercial side.

That makes sense. And obviously, contextually as well, if you get more growth, it's obviously also easier to get margin lead or margin leverage there as well.

Yes.

That makes sense. Okay. So -- and so we should see that though, in terms of those cost offsets in those vessels, that's kind of like a multiyear thing, right? That's not just a 2023 and then like check, we're on to the next thing. That's the right way to think about that?

I think the way to think about it is we are moving with urgency around the organization, design and structure. And so what that means is, we've got a view about what the investments need to be. Some of them are short term and are one and done. Some of them are longer term. So I would just give you one example of a longer-term investment, which would be support for our next-generation system platforms or our next-generation IT system. We have work to do around our systems, We've got to get to one common ERP platform. That's a multiyear investment, as an example, versus we're adding 50 resources in North America to get our team structure correct. And so best way to think about it, the work we're doing around the offsets to that, again, is more short term in nature. We want to get this be done behind us if the right structure in place. And so most of what we're talking about candidly is going to be discussed in February and will be mostly complete, I'll say, within that first, call it, 6 months of 2023.

And Elizabeth, if I could add to some of Glenn's comments there. I think the important aspect of this is that we are in the process as well to set the organization up from a system and process perspective. So that these costs that we have spoken about don't slowly but surely bleed back into the organization. So it's not just a cost reduction aspect. It is an organizational transformation so that we maintain these costs having been taken out of the system.

More of a go for it mentality.

Yes.

Yes, that makes sense. And then for new sales reps in your general experience, how long does it take for them to be sort of fully up and functional?

In my experience, you don't get much before 6 months. .

Got it. Okay. That makes sense. And then we've just talked a little bit about the sales organization. What about on the R&D side? You talked about you have -- obviously, what you just talked about is a sort of conceptual change to how the sales team is compensated, run, organized, et cetera. What are you seeing in terms of how that seems sort of idea, but on the R&D side, if any?

Yes. So I think we've demonstrated over the years robust product launches and innovation and some transformative innovation. And so we would expect that to continue. But I would say in addition to that is, we don't have to invest equally across all of our businesses. That if we think that by investing an extra 10% of DS Core, R&D budget is going to accelerate further adoption of DS Core or further enhancements of DS Core and that's got an attractive growth and margin profile versus any other R&D investments. We will make those decisions. And again, like everything else, we have been acting with our urgency. Those reviews of how and where we spend money with respect to R&D and the bang we get for every dollar we spend is well underway as well.

Okay. Got it. That certainly makes sense. And then in terms of one more sort of maybe macro perspective. Given the state of sort of Russia and Ukraine, et cetera, how are you thinking about sort of potential sales there and maybe in the short or medium term. I mean, granted, I understand that you are not putting the prediction more in your hands so just in general.

Yes. So just to frame it up, Russia and Ukraine represent about 3% of our consolidated sales. So they're not significant in the total company consolidated results. Having said that, though, there are still important markets As we looked at the forecast for this year, we basically took out all of the Ukrainian sales and left most of sales for Russia in our plan. Russia is by far and large, the bigger part of the 2. So Russia is probably 90% of the 100% if you look at the previous results. So essentially, though, we've seen stability in terms of our results. So obviously, we're following all the right sanctions. Our products are critical from a medical perspective into the Russian market and so forth. So we're still selling into Russia. And right now, I think we've done the right level of prudent conservatism in looking at what those numbers look like, but in revenues, we're not expecting to go away. We're expecting it to be stable. We haven't seen a lot of choppiness in our numbers. It's been pretty consistent throughout this year. And so for right now, while it's not a big growth market for us by any means, it's stable, it's moving forward and it hasn't been a big headwind to us.

Okay. That makes sense. As we think about the guidance that you guys laid out for the fourth quarter specifically. Where do you see sort of the relative areas of most conservatism as we think about particularly the revenue line? .

I think, first and foremost, we've done a good job, I think to derisk China, which was the biggest risk area for us. I don't think we'll see upside, but I think things are certainly challenging there. I think we've done our best to be conservative in our thinking about what China would look like in the fourth quarter.

When you say you don't see upside, you're specifically referring to China before I get 1 million...

Yes. Yes. Yes. So I think the thing for us is Europe. I think maybe we're potentially going to have some upside on too early to tell because it's still recessionary pressures, especially in Southern Europe. So when you look at France and Spain and some of those countries, we're a little bit concerned, but I think we've tried to be conservative, not knowing exactly how that's going to play out. I think so far, I feel good about our European business is doing so far. And we'll see what happens in North America. I mean, a lot of it is going to be dependent upon what happens in the month of December. But like I said earlier on, no real surprises in terms of trends of what we thought when we did our earnings call to where we are today.

Okay. Got it. So if I'm just understanding right, China taken out, Europe sort of steady, but obviously, the macro situation stayed there and then the U.S. probably the most like even said in terms of like conservatism of OpEx. Is that...

Yes. I think the biggest potential upside for us is if we do better on supply because the demand is there for certain products. If we can get better on supply, especially on electronic components, that would help us to deliver upside. But again, it's a challenging environment. So I think we were conservative in our thinking around how we would forecast that in Q4.

Got it. And just obviously, this -- having that supply constraint has obviously an impact on this next question, too, but in terms of like broader overall like interest rates and how sort of providers are thinking about financing some of this equipment, et cetera, are you sort of seeing sort of that be an issue at all? Or are you sort of helping to sort of accommodate that? Like how do we think about that element and its potential dampening impact on demand?

Yes. I mean we haven't seen a huge impact where it's made a big difference for customers are stopping the spend. I think a big part of it is the value proposition of if you bought the equipment, it actually makes you more money in your office because it improves your workflows, gets more patients to the door. So if you look at the bigger picture to say, yes, I've got to lay out x amount of money by itself, you'd say maybe I'll wait. But if you look at what it does to actual profitability of an office, it actually improves it. So I think people are looking at it from that lens, and we're doing what we can to help our customers on the financing front where we can and making sure that we're getting them the equipment when they need it, where they need it. And trying to help them through this higher interest rate environment. So I don't think we've seen any major negative impact associated with the higher rates, but we'll have to see what it means if they continue to go higher.

yes. No, that makes a ton of sense. Obviously, one of the big drivers on the consumables side over the last few years has been the one DS program in terms of consolidating consumable demand and also helping to generate interest in new products. What changes have been made to that program in sort of 2022? And how are you kind of seeing any potential room for improvement there as we look forward?

We haven't looked at that in any great detail so far in our first 10 weeks here, Elizabeth, we've been focusing on. But what we're calling the hygiene of the organization to set us up for success in '23 and beyond. And that's been a core part, along with selecting the investments that we want to make and putting all the work behind going after the North American opportunity for -- as an example.

To add Elizabeth, I mean it's a loyalty program that helps to enhance share of wallet. The program is still running today. And each year, there are learnings out of it and enhancements to drive even more effectiveness out of the program. So it's been in existence for a couple of years now. And with each of those years, there's been learnings and opportunities for enhancements to the program. .

Okay. Yes. No, that's helpful. In terms of the -- you just said about the overall hygiene of the organization, do you feel like you have the full executive that you need at this point. Obviously, the appointment of you 2 was a big step in that development, and we're very, very happy to see that. But does that kind of -- you feel like you guys now have the team -- ex the salespeople, which you obviously talked about hiring, do you have the people you need? Are you still working on certain areas? How do you see that right now?

I think broadly, we have the individuals in place that we want to have in place. Just this week, 2 new hires started. Bruce Peaty, who is going to lead our APAC region. The highly respected leader from Australia, who's lived and worked all over the Asia Pacific region. So we're really pleased to have him on board. And Tony Johnson as Chief Supply Chain Officer, who has worked with me for many years in the past. So I think those 2 individuals, in particular are going to help us with our agenda moving forward. And everyone else is committed to turning this organization around. The longevity of folks here, as you know, is pretty short. Lots of the leaders here are here less than a year, in fact, a lot of new in 2022. So we have -- we just held our first face-to-face meeting for this team all week. Where we've layed out our agenda moving forward and brought them under the hold with respect to some of the work that we've been doing in the background. So everyone is aligned and committed and knows the expectations that Glenn and I have of them, their functions and their regions.

Got it. No, that makes sense, ton of sense. As we think about your guys' sort of next year sort of -- traditionally, pre-COVID was like traditionally like a large new product launch here with Chicago Midwinter and IDS. We have seen some of that kind of cadence change post COVID as things just -- during COVID got launched when they were ready, et cetera. Do you see that as sort of -- like an important sort of go-forward strategy? Or you sort of going forward in terms of having these like launches at these shows? Or is that something you guys are reevaluating and maybe changing in a post-COVID environment. .

Well, I have never delayed the launch for any event in the past. So I think when we are ready to launch it, we will launch it. And if it's 2 months before 1 of those big events, then we will do the dog and pony show with those big events. But we won't hold back on trying to make money before any show.

Okay. Got it. And in terms of like your overall marketing strategy, it seems like you guys have sort of post -- pre-COVID sort of focus more on some of these dental shows and then pulling back on some of that moving forward to more digital. Do you sort of see that as sort of like that trend continues into this post-COVID environment and not sort of trending back towards the sort of -- more towards how the pre-COVID things were?

Yes. So listen, we think some of those shows are very important to us. It's provides great connectivity to our customers. I mean at DS World, we had 3,500 dental practitioners, getting trained on our products, learning about our new products, listening to our KOLs. I think it's critically important. And Glenn and I shared this experience from before. Clinical education remains a cornerstone of the activity we do. And in discussions this week, it was reaffirmed by our regional leaders that continued investment in those areas is super critical, and we get disproportionate traction when we invest heavily in those areas. So that will be, I suspect, a focus of renewed energy moving into '23 and beyond.

Yes. On a clinical education piece, the training piece with our customers and so forth, it is kind of back to the pre-COVID levels from the perspective of we've had, I think, 7,000 to 8,000 dentists come through our academy here this year alone. So it's really good to see them reengaging face-to-face like it was pre-COVID and hopefully, at some point, you have a chance to see our academy, it's a really impressive facility.

Yes. Nice. No, looking forward to that. Glenn, as we think about the opportunity on the free cash flow line, where do you see sort of the biggest opportunities on that front?

I think first and foremost, I'd like to see us get consistently in the 100% free cash flow conversion range. And if I look at the opportunities, I think, first and foremost, we've got to improve our profitability, right? So it starts with better profitability. I think there's opportunities around managing inventory more efficiently. And so with Tony coming on board, he and I are going to partner on an initiative around inventory and some cases, we may have to build some additional safety stock; in other cases, reduce. But I think overall, there's an opportunity to get more cash out of inventory. Third is elimination of a lot of the onetime cash outlays whether it be associated with the investigation, legal fees, accounting fees, we've had a lot of onetime cash outlays that need to go away over time. And then just lastly, putting much more discipline and process around capital expenditures, my opinion, we've been way too loose on CapEx, spend a lot of money on different things across the company. So I really want to tighten down on what's the really required CapEx? What's the returns on these investments and making sure they meet certain hurdle rates as we go forward. Candidly, it's been one area we've been a little bit too loose on, I think, that's an area we can pull back on and actually be more efficient on. So those would be the big areas to add on. And I think the good news is we're a healthy business. When you look at the cash flows we generate, we are a healthy business. And I think we've had better execution and performance, we can easily get to this 100% conversion rate moving forward.

And that's just sort of over time, you would expect that to continue to drift up. It wouldn't be kind of like a -- we should expect this by 2Q or something. .

Yes. And I think it's a level we want to stay at, right? So it's not hit it and then come back down. 100% is what we're going to shoot for once we get to a more normalized environment, which is not -- in the not-too-distant future.

Got it. And then just for our capital deployment strategy, like how are you thinking about sort of the risk/benefits from like debt paydown versus some additional capabilities you might need to acquire or anything like that? .

Yes. I think first and foremost, it's got to start with better cash flow performance. So we want to make sure we're doing everything possible to the previous discussion of improving our cash flow performance. And then when we look at how to deploy our capital, our top priority is investing internally and getting the investment returns we expect from internal investments, whether it be North America sales force investments, IT systems, et cetera. So that would be the first priority. We've committed to deliver at least 50% of our free cash flow back to shareholders through dividends, through share repurchases. I think that will continue as we go forward. On the M&A front, I think right now, we've got to get our foundation solid and fix some of the cracks in the foundation before we go out and buy any major companies. And so I would say, we're going to probably not see anything major over the next 12 months until we get the systems where they need to be, the processes, fix the hygiene of the company, as Simon likes to say, that doesn't mean -- that doesn't mean we won't do anything, but I think don't expect us to do anything large on the M&A front in the next 12 months, I think it would be a bad decision. So we've got plenty of integration work to do from the previous acquisitions. I don't want to layer into that, but that's the way I think about it. I don't know if I missed anything, but hopefully, that answers your question.

Yes. No, that's great. Maybe Simon or Glenn, like what have we not talked about that you think is important to raise at this point from sort of your experience at the company and sort of what you're thinking about?

I think just to reinforce the organization operates in attractive end markets, 3%, 4% growth markets, I would say. The technology that we have and the people that we have are -- it's good technology. The people that we have, customer-facing are very knowledgeable. And it's the task of this leadership team, which many, many of us are new, is to set up the organization to be able to deliver on the promise the organization has. I think this organization has tremendous promise in the dental market, and we have failed to live up to expectations in the past. And so the work that we've begun to undertake here has being designed to ensure that our systems and processes and compensation and structure are aligned to ensure that we can deliver appropriate performance on a sustained and predictable basis. And that's our mantra moving forward.

Yes, no, that sounds great. Well, that sounds like, unfortunately, I think we have 30 seconds to go, but I think that's probably the perfect place to end. So thank you very much. It's a pleasure. Simon, Glenn, and Andrea. Thank you so much for the time today.

Thank you.

Thank you.

Take care.