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

Great. Good morning, everyone. Welcome to day 2 of the BofA Healthcare Conference. I'm Mike Cherny, the healthcare tech and distribution analyst. It's my pleasure to have with us DENTSPLY SIRONA, Simon Campion, still new-ish CEO [ yet ] ish for the first year and Andrea Daley from IR joining us the Croswell. So really appreciate you coming here.

And I guess maybe using we call is a state of the world dynamic. But you've been job for about 9 months now, I think, give or take. So I guess let's just start with what have you been most positively surprised about and most, I guess, worried about in terms of we tried to find a better word but as you stepped in with you and Glenn joining the senior suite?

I'll start for the back end. I think the work that we have underway now is really an artifact of integration that hadn't been completed with the merger of DENTSPLY and SIRONA. And so that's work that we're doing right now. Work on processes such as R&D. We announced that earnings that we are going to do a lot of work on ERP. We just signed up for that. And In some of the margin improvements that we've seen over the past couple of years, we're really taking low-hanging fruit as opposed to making foundational changes to the company. So that's the work that we have underway, whether it's R&D process, whether it's ERP, whether it's SKU rationalization, whether it's network optimization, and we announced 2 facilities being closed just at earnings last week. So that's where we say the better new side of the equation. On the positive side, we still sell about $1 billion a quarter despite sometimes our best efforts. We have a pretty strong product portfolio that encompasses all aspects of dental care. And we are, I think, at the forefront of the digital transformation that's in the Dentistry. So -- and the people that we have in the team, they have simply been just trying out for stable and inclusive and transparent leadership and we're beginning to see the pivot in some of the data that we have internally about do people want to come to work at DENTSPLY SIRONA. And we think that's really important that we get that correct first.

And I like the fact that you and Glenn obviously leaders we brought in have come in with a very fresh set of eyes and kind of clear mind on, let's say, the portfolio and make the best of what we have here and continue to build forward. You listed a lot of stuff from a priority perspective. And I know that we're going to be seeing over the next couple of quarters than the November Analyst Day you plan to do. How do you think about prioritizing what should come first? And I guess maybe this is kind of like that old analogy of which patients do you save when there is some mass casualty type dynamic. But I'm not overstating it, but like how do you think about the best ways like does one feed the other? Does some of the facility rationalization get you better equipped on the cost side as you roll in ERPs, so you're not duplicative efforts. Like how do you balance and mix all those together?

I think the overarching thing is this over transformation that we're going through, where we have as of April 1, restructured how we work together. The effect of DENTSPLY SIRONA coming together was a lot of duplicity in terms of functions and people and processes. So streamlining that into one leadership team under Andreas Frank is going to help us make decisions faster, make higher quality decisions at hold -- hold people accountable for what they do. The SKUs we've communicated before, and it's different groups for the most part that are doing this. So we're not asking the same 15 people to do this work. The SKUs, we have 90,000 SKUs there or thereabouts. The vast majority don't contribute anything meaningful to revenue. And they have just got out of control. So we have all the analytics done now on preventative and Resto. Resto and Endo rather. And what we're doing now, we want to be thoughtful about how we do. Point number 1 for us is don't give up any revenue on this. It's revenue you don't want as a really low margin revenue. But we're actually in some countries in Europe on some product lines right now testing our hypothesis. Can we migrate customers from product A to product B and what will be the result of that be?. We don't expect to see any benefits of that this year. We expect to see benefits at the back end of next year. And it should afford us an opportunity to rationalize our network footprint, we believe that . So they're just 2 of the big triggers that we're going after.

And just thinking about that to taking that a little bit or pick through it. In terms of to the x-ray side, how much of it is a mix of -- the cost benefit side, I clearly get to refocus specially on higher-margin products. But how much of that does it also open up an opportunity with customers to potentially expand, potentially build penetration, using this as an example of, hey, we're swapping out extra vibe, but we also sell A, B, C, D that you are purchasing from someone else.

Again, I know it maybe sound like a cracked or scratched record, but the lack of integration that was clearly evident hampered that effort entirely. There was just simply not enough collaboration between both sides, DENTSPLY and SIRONA. And we didn't invest in areas like DSOs. We simply didn't invest in areas like DSOs or even the university footprint, I was at a university in New York yesterday. And the DENTSPLY SIRONA didn't want to do business with these guys. So again, streamlining the portfolio, having one your throat to throttle and then investing behind the DSOs is super important, and we share that earnings some of the traction that we have begun to get with DSOs. A year ago, they didn't want to talk to us. Now they're actually partnering with us. They're using our facilities to train their employees. We saw above accretive growth to DENTSPLY SIRONA from our DSO business and we gave some examples where we placed several dozen primescans in one DSO in particular, and it drove significant volume on aligner business on the SureSmile business for them. So that is just one example of how we can partner with DSOs to meaningfully grow. And we should have a disproportionate share of wallet. India so has given our portfolio.

And those examples, I think, bring me to my next line topics. Obviously, you reported results last week, put up from all intents to purchase a most organic growth quarter which really impressive work there. How do you think about some of those drivers that you saw come through in the quarter? I know there's been some moving pieces on numbers in the past. But either way, on a reported basis, on a total number basis, the number was quite strong. And so how do you think about where are the biggest pockets growth were and what you think are more natural market oriented versus some of those activities like DSOs that you've already -- it's one example, but other areas where you've been able to make your mark and the team has been able to really push forward on an offense side?

Well, certainly, the -- I think the expression of clock speed will resonate. The clock speed of our organization is going up. The intensity in business reviews is going up. We have 2 full days of business reviews every month. If it moves, it's measured. And so we are holding people accountable for performance now. With great performance in consumables. Some of that was reestablishing a baseline within our distributors, but the end market growth and retail growth was also a pretty strong. We shared data with everyone but still some pressure on the technology side that we're seeing as a result of the macroeconomic conditions. We are still -- we have been cautious in our outlook for the rest of the year given the history of our company, given the macroeconomic environment. But still, we raised the bottom end of guidance. And we have barring any populictic macro things, we think we're going to have a solid year across all our portfolio we've got. We've had good traction with Primescan Connect. Our scanners is a gate opener into dentistry . And our scanner, Primescan is at a high end. It's -- we think it's the best scanner quality perspective on the marketplace. But clearly, it's a premium price. So we launched a lower-priced kind of mid-tier version in [ Poland Bladensburg ] brand can connect at DS World last September. And last quarter, we got great traction, particularly in Europe on that. So we're not getting out ahead of our skies here, but we are definitely getting on the front foot. It's time to stop loosing at DENTSPLY SIRONA .

And that I want to get back into the Primescan portfolios. But that brings up an important, I would say, philosophical question that came out, I know from 1Q earnings. This is this whole dynamic if you put up really strong results on an annualization basis in a normalized world, people think, okay, maybe guidance should already go up. But then you look at the factors, it's 1Q, you have macro pressures that you can't predict. And like you said, the history of the company is such where it seems like the baseline you want to establish that Glenn wants to establish is let's put numbers we know we can beat and then work from there. And so I guess, along that lines in philosophy and maybe you already answered this with kind of expecting a good year, but I didn't expect any guidance increase in 1Q maybe just because of the flow of last year and all the changes, but you did increase the bottom end of the range. And so how do you think philosophically about that way that you're continuing to communicate with that transparent effect as you settle into the role here?

Listen, we -- we've had a number of missteps. We certainly didn't -- after one quarter, the discussion never came up about, When we going to raise the top end. But we did discuss the bottom end and the momentum that we have in the company, we said what we're going to do last year. We think did it. Everything we've communicated about our plans moving forward. I think if you check everything we have said, we've we have done it. And so we are -- the employee engagement is increasing. So we feel positive about our organization. We already feel pretty positive about our portfolio. We have seen that the engagement -- the reengagement of our organization with our distribution partners globally and DSOs, just mention 2 is heading in a positive direction. And I think all those things feed into cautious optimism about the rest of the year. But certainly, we don't want to get out ahead of ourselves.

And I appreciate that approach. Maybe let's start diving to the product portfolio a little bit beyond what we've talked about. So -- maybe we'll start with the Primescan family, which obviously is an incredibly important focal point. You have this ongoing debate of price points within the market, you talked about introducing a mid-level product versus the high-end Primescan, which I think is known as a premium product. As we settle into this market and as workflows become more important and then also worries about financing capabilities and whatnot. How do you think about the demand curve, the order book that's been building tied to your bifurcated product line on iOS?

Well, certainly, we've -- Primescan Connect has had a very robust traction in Europe, in particular, in the first quarter, sequential month-over-month growth. What we've also seen to a lesser extent is as Primescan is introduced and the capability of Primescan Connect is not quite the same as Primescan AC but it can connect to Primemill, for example. But as we introduce the concept of digitalizing your dental office, we've seen some people flick -- flip from, hey, a one Primescan connect to like on Primescan AC. So we think it's a good door opener for introducing the other aspects of our portfolio. And we have a great scanner. We have great chairside milling. We have a very robust 3D printer. I know there's a lot of debate out there right now about milling versus printing. Maybe someday, 3D printing will take over milling, but that's not today, and it's not tomorrow.

It's in either way, and you're positioned in both. So have -- and so maybe thinking about to just that market you have the ability to break down the different products versus what had been historically DENTSPLY SIRONAs legacy is, the all-encompassing best-in-class full chairside CAD/CAM. As you go into whether it's existing customers, where they're looking for replacement upgrades or particularly new customers, how has that discussion evolve in the [indiscernible] approach versus the -- just buy everything against the current financing environment?

We're exploring opportunities to help the customers by the more expensive digital products that we have. And we think that our -- being a full line supplier is a blessing and a curse, right? It means everything is -- everything is spread and to a greater extent with resources. But we think it affords us an opportunity, particularly in the DSO world, where we can do your whole house conversions into scanners into chairside if they want to and get into consumer and aligners. So we think it's a position of strength, and it is something that we talk about robustly in our internal meetings to ensure that we're getting the biggest bang for our book in these spaces. We should be getting -- we should be getting pull through. We're beginning to have those discussions about what that really looks like in the company.

And along those lines, typically, this has been a distributor-led financing market. You talked about ways to explore customers. What would that kind of look like? And how would that partner with your distribution partners?

Again, we haven't -- all about it in any great deal, we're ready to roll out anything. And nor have we discussed it with our distribution partners. But given the fact that we have Primescan, for example, Primescan Connect or Primescan AC and our aligner business, is there an opportunity to bundle those 2 things together in a compliant manner. But again, that's we're in a position where we can have those discussions, and we'll need to bring our distribution partners into those discussions. But if we were just a standalone capital equipment supplier, then we would all be in a race to the bottom with respect to pricing.

Got it. And then maybe just rounding out this part of the current portfolio, Imaging, I know what of your peers called out meaningful pressures they're seeing on the imaging side. Remind us where you sit right now in terms of latest product iterations and what you're seeing again looking at that order book demand curve, which I know is obviously a big debate point across the dental space?

Yes. So I think we saw softness in Q1 on the scanner side. I think there's certainly some softness that you and your peers have shared in our own survey confirmed on the higher end 2D, 3D side -- $3 images side. But it hasn't -- sentiment hasn't worsened. We did a survey of about 300 people in February, and we did a survey of 1,600 people or 1,569, to be exact in April, 220 something in the U.S. and in Germany and the U.K. were the biggest ones. And 1 in 4 had reticence about purchasing expensive capital in those countries. If you go to Australia, 1 and 3 had reticence about capital. So back to your question about you raise the lower end and the upper end, all those factors that were affecting them plus the demand for the capital piece. So that's how we're all tied in.