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

Thank you, and good morning, everyone. Thanks for joining us for this next session. My name is Nathan Rich. I cover the dental space here at Goldman Sachs. Very happy to have DENTSPLY SIRONA with us today. Quick introductions, and then we'll jump right into questions. To my right, Simon Campion, Chief Executive Officer; and then Glenn Coleman on the far right, Chief Financial Officer; and we have Andrea Daley, from Investor Relations here in the audience with us.

I think maybe to start, Simon, I think looking back at the history of DENTSPLY, it's a company that's gone through a period of challenges. You've kind of come in and framed a turnaround strategy. I guess could you maybe take us through the key elements of that to start? And what you see as maybe the biggest opportunities to kind of change the business going forward and kind of getting to more -- a more consistent kind of growth for the business?

Sure. So listen, I think we can put everything in a fairly simple context here. The work that we are embarking on is really overdue integration between DENTSPLY and SIRONA. That merger was consummated whatever 6 or so years ago. I think it's fair to say that there was never any integration work done either in efficiencies or in central functions or in processes. And so that's work that's all underway right now that we've kicked off. And we've also kicked off or we've not kicked off, we've executed and we're running the company this way. A new operating model, which aligns DENTSPLY and SIRONA previously. They were effectively operated as 2 separate companies with 2 operating models. And now we have one operating model. We've stand-up meetings every Monday, 2-day management reviews every month. We run the business on KPIs that cover the usual things that you all are interested in the financial pieces. But then other KPIs around quality, around operations, back order, continuous improvement targets, turnover, value of the R&D funnel. And so that is the transformation work that's underway, in addition to the bigger stuff such as the SKU rationalization, portfolio assessment and as we announced some time ago, ERP.

And I would just say the key elements of our plan really start with the restructuring programs. So we announced the beginning of this year, we expect to have $200 million of annualized savings when we fully implement that plan, which will be sometime in mid-2024. Not all of that's going to flow through to the bottom line because we are reinvesting back into the business around our commercial organization, in particular, our U.S. implants team. Doing a lot more around clinical education, investing more in DSOs. And so a key for us as we look forward is driving faster top line growth in the 3% to 5% range consistently. And then we have more opportunities around the whole margin improvement story in terms of the SKU rationalization that Simon had mentioned. We think there's opportunities to actually simplify our manufacturing footprint. In fact, we've already announced 2 plant closures. And I think there will be more opportunity for us as we go forward to optimize the network once we eliminate tens of thousands of SKUs, which have really been identified in our Endo and Resto businesses today. So lots of opportunity. We're also investing in the ERP system going to one platform. And again, that gets back to Simon's point around not integrating the businesses. We are moving forward with SAP as our vendor of choice. It's going to take us probably 3 to 4 years to get to one platform. But there's going to be huge benefits on the back end and efficiencies that will even drive more margin improvement over time.

And I guess if I look at the history, DENTSPLY has been at about $4 billion of revenue since 2017 and it really hasn't grown dollars since then. I guess from your standpoint, what will it take to get to that 3% to 5% growth level more consistently from either product standpoint or market standpoint?

Well, a couple of things. Glenn touched on some of them already. There are areas of our commercial teams globally that we're underinvested in, implants being one. There are other areas. The dental community is -- it turns out it's very much like a family environment, right? They enjoy being educated together and working together. And we backed away from clinical education, quite frankly, which is really important to the dental community. And so we've begun to reinvest in that space just in the past couple of weeks. We had 150 Endodontic KOLs at a meeting in Europe. We also had almost 500 implant dentists at a meeting in Greece. So we are doubling down on getting back -- investing in the commercial team, changing the commission plan, investing in clinical education and trying to create our own demand. And I think with the increased diligence about the way we run the company, that will bode well for us to begin to reignite the sales growth, the revenue growth of this organization. The portfolio work, we mentioned that recently. We're doing an external assessment on our portfolio. We need to stop asking ourselves is our portfolio good enough and talk to customers? So we are -- we have just embarked on an external assessment of our portfolio so that we can determine, do we have gaps in that, and we will be able to make an informed decision about should we invest in remediating those gaps either internally or through external acquisition at some point in the future.

But for us to grow in this 3% to 5% range, we need to win in aligners and implants. And that's where we're really focusing a lot of our effort along with the whole digital platforms. And so if you look at what we're doing in the aligner space, we have made really good progress. We've been growing double digits in underpenetrated market. We think we're capturing more market share as we're going forward here. We feel really good about the momentum we have in the aligners business. Implants, we've been lacking. So we've been losing market share for the reasons we talked about earlier. I think we've done a lot of things now to move in the right direction, and you should see some sequential improvement going forward here in the implants business, and then getting to year-over-year growth and then hopefully year-over-year market growth. I think if we do that, these are markets that are growing above the 3% to 5% range. You then take the digital platform and the whole scanning space and what we could do there and you say, well, why can't you even be growing faster than 3% to 5%, right? And our view is, let's get there first, and hopefully, we can get to the higher end of that range. And we'll see what happens with the rest of the portfolio at the consumables or other areas that are growing in that 1% to 2% range on an annual basis. But we feel really good about our plans here, and hopefully, you'll start to see more progress even later this year.

And importantly, this organizational restructuring and transformation that's underway, we're bringing DENTSPLY and SIRONA truly together for the first time. That's enabling us to look at the investment we make in R&D. And so if there's a space that's where our portfolio is pretty robust and it's growing at 2%, then we don't need any doubles or triples, right? And so we can pay back our investment in R&D to invest in spaces that are more evident that we rather have a gap or there's an opportunity with greater growth, greater margin, greater access. And so that's the work that we've completed a lot of that work now internally with the assessment of the funnel. And now we have to truly assess how our portfolio stacks up against competition, against what our customers want.

Great. I want to get into that, but maybe the last one on the long-term target. So Glenn, the $3, I think if you just run rate the restructuring savings into next year, you get something in the mid-2s. So can you talk about like after you realize that kind of first round of restructuring, how much of the incremental delta between kind of the mid-2s and that $3 range as additional cost savings actions versus growth in the business and leveraging that?

Yes. No. So -- and we're going to lay this out in much more detail at our November Investor Day. So November 9, we have an Investor Day. We're going to lay out the specifics and the road map to the $3 by 2026. But I think the restructuring, you got to be a bit careful to say, well, if you kind of take the additional savings and say, that's get you to the mid-$2 range, we are going to have to continue to invest some of this back into the business to make sure that we do get the top line growth that we're expecting to make we have the right compliance programs in the organization, make sure we have the right systems and so forth. So yes, a big way towards the $3 will be the restructuring benefits and getting the full year captured, by the time we finish this in 2024. Most of the work is behind us. In the U.S., most of the international markets are done. Europe is the one big area that we have to go through the workers' council process. It's a co-determination process and it's a lot of work. I mean it's 20 workers' councils in 13 countries, and so it's not just one body that you're dealing with. But we think we'll get through that. We'll see a big leap forward on the savings from the restructuring. And then I think a big part of this is going to be leverage. So as we get faster top line growth, we'll get leverage. The SKU work is going to play into our overall savings, not just in terms of simplifying the portfolio, in getting out of lower margin products, but also simplifying the facilities and manufacturing footprint piece. And there's a big opportunity for us around distribution as well. We have close to 60 distribution centers. We think that's too many, and we have a better way to go to market relative to serving our customers and serving our distributors. So there's lots of opportunity. We'll lay out the specific building blocks in November. But we have a detailed plan that we think is going to get us to where we have targeted by 2026.

Great. That's helpful. Maybe moving to the end market and just kind of what you're seeing more real time, I think you've highlighted pretty stable patient traffic that's continued into 2Q. Can you talk about -- we're getting, I guess, a lot of questions on how consumers might prioritize their spending in this environment and what impact that would have on traffic to the dental practice, but then also you kind of have the unique exposure with the Byte business where you do have a D2C business. And what -- could you also talk about what you're seeing from an elective procedure standpoint?

Yes. So firstly, our Q2 numbers reflected our belief that there would be slight improvement in sequential improvement in revenue and EPS. That's where our Q2 was at. We mentioned before that rather than rely on third-party information about end market performance and customer sentiment that we would do, we would our own work, which isn't that novel of thought for myself and Glenn. So we started that work in February, and we did it again in April, and we had almost 1,600 global respondents to the April therapy. What we did see was a slight improvement in sentiment around patient traffic and consumable utilization in dental practices, and that was around the world. The main areas were U.S., big countries in Europe and Australia and New Zealand. But there continue to be conservatism and reticence around capital investments. And so in the U.S., it was 1 in 4 dentists were concerned about investing significant money in capital. And in Australia, for example, it was 1 in 3. But that hadn't got any worse between February and April. And we do know that somewhere in the $20,000 range, anything $20,000 or less, dentists generally fund purchases themselves. Anything above that, they go and they get a loan for. So Australia, for example, saw 10 monthly increase in the interest rate. So their conservatism is perhaps not a surprise. With respect to our Byte business, as Glenn mentioned earlier on, extremely strong performance in Q1 in both SureSmile and Byte. And thus far in Q2, demand has been steady for our direct-to-consumer business. So, so far, I wouldn't raise the flag of victory at any point in time here, but it seems to be holding pretty robustly right now.

And based on the survey, the results you just communicated, so pretty similar trends across like the major geographies, U.S., Europe and Australia.

Yes, probably a bit heightened around the capital, as we said, in Australia. I think in Europe, it's probably similarly heightened, but not 1 in 3.

Got it.

Yes. And we have some large markets, obviously, in Europe, Germany being the second largest country by revenue outside the U.S. And so we look at some of these markets, we are seeing some pressure on the equipment side and customers deferring decisions on the larger ticket items. But we factored a lot of that conservatism into our forward guidance. So I think nothing is really different from what we anticipated. It's still a challenging market, though when you think about equipment, but patient traffic remains steady, which is a very good sign.

Great. And then I wanted to ask on China as well, just given a lot of moving pieces in that market. I think as the country has kind of stayed open, the dental traffic has been relatively stable. I'm curious if that's sort of the general sense that you've gotten? And then can you maybe talk about your business because you saw a very significant decline in China last year. You're dealing with the impact of the VBP program this year. I think you still -- despite that guided for modest growth, maybe just kind of how that plays out over the course of the year?

Yes. So I'll try to paint the picture of China and what we're seeing. So in 2021, our China business was over $200 million in sales. And to your point, we were down close to 50% in 2022 due to a number of factors. Obviously, the COVID lockdowns, VBP, where it wasn't implemented, but obviously, a lot of the dealers stopped buying product, knowing there was price reductions coming and our own internal issues relative to the investigation. So we saw a sharp falloff in 2022. And 25% of that business is implants, which is affected by VBP. Q1, we were down about 30%, and this was our last really tough comp quarter. And we really didn't see much of a pickup in most of the first quarter, although we saw some positive signs as we exited in March. And as we mentioned on the earnings call, in April, we saw some very positive trends. The volume really picking up on the implant side. We saw some favorable mix in terms of more value implants versus premium implants, and we did not discount as much on the value side. So from a pricing protective, that was good. And so some of the headwinds that we're anticipating there may be less than we kind of had indicated and modeled. And as we've gone forward for the rest of Q2, I'm not going to say too much, but things are pointing in the right direction. I'll say, we feel very good about what we're seeing. The equipment market in China is no different than other parts of the world though. So the equipment market in China is still a challenge. So we need to factor that into the overall expectations for China. But as we look at the year now, I would say we expect to see Q2 a nice sequential improvement over Q1, return to growth most likely in Q2. And for the full year, expecting to be slightly higher than 2022, which is actually a pretty big step up and you think about being down 30% in Q1, right? We have to make that up. And so I think all things are pointing in the right direction, unless there's some unforeseen thing that happens there. We feel really good about what we're seeing there, and we expect China to be a nice growth market for us beyond 2023.

Got it. Okay. Maybe I wanted to talk about the implant business and the work you've done there. I think it seems like one of the bigger opportunities for the company given that it has underperformed for a period of years. I guess you recently, I think, completed a sales force expansion. I guess how do you think about getting this business back to more sustainable growth?

Well, I think some of my earlier answers, I'll probably repeat them a little bit here, right? It's sales force expansion to make sure there are more feet on the street. Adjustments of commission plans, so that sales teams are getting paid to grow, not getting paid to show up. Investment in education, I would say, education, both internal education of our sales teams to make sure that they are -- that they can go and have a competent clinical discussion with their customers. And then finally, the clinical education piece, which was critical in this space. Implants is the most clinically significant, shall we say, part of the dental industry. And so when a new face shows up at an impact clinic, they have to convince that implantologist to try or use our products and then influence the referral network as well. So it's not just -- it's not a light switch that we go in and turn on. There's a process that takes a number of months as they build credibility with customers and with their referral base. So, so far, we're -- we had all our team in again recently for further training in the implant space. We're doing the external assessment on our portfolio. So back to my R&D comments earlier, if we have a gap in implants, we will now have -- we expect our funds freed up to be able to invest disproportionately in our implant space. That's the decision we want to make. I think the SKU work that Glenn already alluded to, when we eliminate SKUs, you eliminate the requirement to do maintenance on those SKUs. So that frees up more money to invest disproportionately in areas that are faster growing, more profitable and implants is definitely one of those. So to my comment on the very first question, implants is a key performance indicator that we measure every month. And we are -- we have some interesting discussions about that particular KPI.

And I guess you kind of touched on it, but just would be curious to get your thoughts on the breadth of the portfolio you have in implants right now. You feel like it's where it needs to be from both a premium and value.

So I am not the best person to answer that question, right? That's why we have these external people coming on board to speak to customers around the world who are going to answer that exact question because I don't want to answer and go, yes, we have a great portfolio. It's not in my eyes. That -- I can't answer that question and be confident. It needs to be the customers to understand, to communicate to us the gaps. We have -- I'll tell you, we do have a robust premium and a robust value-based portfolio. Our value-based portfolio is growing very nicely. The pressure that we experience is in our premium segment. And Glenn mentioned the performance in China, particularly on the value space. So we have a robust portfolio. Is it robust enough to compete with the Straumanns of the world? We don't know yet. I expect to have the answer over the summer, and then we can begin to invest actually in those gaps when and where they exist.

Great. Wanted to ask on CAD/CAM because that's another category that's gone through a lot of change. DENTSPLY SIRONA had kind of been the leader in that space, but we've seen a lot of competition come in. And so I'd be curious just to get your view on how you're looking at that category long term from a growth standpoint. And then also how you're planning to position your business relative to the competitive set that's out there now?

Yes, sure. We have, again, a robust portfolio, I think, in CAD/CAM from two 3D x-ray to the scanners, to the mills and to the printers. And we are -- we certainly do invest heavily on the R&D side around that. And more recently, particularly around software and the offering that we have with DS Core, which is -- which we think is going to help us to be transformative in the CAD/CAM space, particularly as we see the continued important and heightened importance of DSOs, particularly in the U.S. market. We think DS Core can help them achieve their efficiency goals and their treatment goals. On our scanners in particular, we want to be victorious in our scanner business. Typically, historically, we have been priced at the high end of the market in this environment as we spoke to earlier. That causes a bit of undue pressure. We did release a more value-based Primescan in September of last year. And across our business, we don't make decisions without testing them. So we have tested do we need to adjust the price point on Primescan Connect in Europe. And we saw a robust response in terms of volume to that slight price adjustment. So we're likely to adjust our prices on that to drive volume in. We are also something that we haven't been good at in the past is we are in a unique position. We can bundle -- we should be able to bundle stuff with our capital, right, bundle aligners, bundle implants, bundle consumables. We have a luxurious position in that regard. And so we're doing a lot of work right now on how can we bundle more to get more scanners and more CAD/CAM into the marketplace. And finally, there's a lot of debate right now about milling and printing. We think they're complementary and synergistic. If you want a permanent crown, then you need to mill it. I think the 3D printing is a great technology that has its place, but the material science is not there yet to be able to 3D print a permanent crown for a patient. And I think the very fact that the labs that produce permanent crowns, they don't 3D print, they mill them. So milling -- printing has a space in time. It may overtake milling. But today, the capability of the materials is not there yet. But we've had really robust feedback on our prime print, and we think it's complementary to the entire portfolio of CAD/CAM products that we have.

Great. And I just maybe wanted to follow up on bundling. I think it's something that manufacturers in this space have tried to bundle capital equipment and consumables, I'd say probably, with mix success at best. I guess coming from outside the industry, is there maybe a more unique perspective that you can bring on maybe a different way to go about that, that might resonate more?

Yes. We think we have some levers to pull. We -- I've done it in the past. There are some people on our team who have done it in the past. So -- but again, we're going to pilot these things in certain geographies. On the SKU rationalization, we're piloting SKU rationalization in 3 different geographies right now, both direct and indirect. We don't want to make your seat-of-the-pants decisions about our business. So we're piloting, we're testing. And if and when it works, we suspect it will work, then we will roll it out. We piloted the pricing program, and that's worked. So we're going to roll it out. We will pilot bundling. And if it works, we will roll that out too. So we're being very diligent with how we run our company.

Got it. And then just maybe 3D printing, just given the focus on that product and the potential there. Obviously, maybe ways to go from a technical perspective to kind of get to where we need to be. You have a 3D printer. Maybe how are you going to market with that now? And maybe what do you see the future of that product potentially being?

Well, listen, we're aligning it with where we've been successful in the chairside business. So there are -- those customers are primarily focused right now. But we're also investing on -- behind R&D on our 3D printer around the material science piece of it. So we are not waiting for someone else to come up with a solution here. And then finally, it is wrapped up in DS Core too. So it's -- we are not launching any new products that don't have the capability to be interoperable with the rest of our CAD/CAM solutions and with DS Core.

Great. Maybe going over to clear aligners next. SureSmile has done really well, as you mentioned on earlier. I guess maybe is there a part of the market or what's maybe resonating the most that allowed you to kind of continue to post double-digit growth in that business? And where do you feel like sort of the long-term potential is for SureSmile?

Yes. We feel like we've got really good momentum with SureSmile. We've been growing double digits pretty consistently over the last couple of quarters. It's still relatively small when you think about how big it is to our overall business. It's around $150 million in sales. But we are expanding geographically. We're using a lot of clinical evidence to support why SureSmile is a better product than others in the market. So there's clinical data that suggests that our product requires fewer refinements, fewer revisions. And obviously, it's a good thing from a customer and a patient perspective. And so we're really pushing hard on this clinical data that we have. And I think it's making a difference in most markets around the globe, but it's a business in an area that we're going after hard. And right now, we're focused really on the GP side. We are also investing in this space. So every one of our Ortho reps in the U.S. will have a scanner going forward, which was not the case in the past. So when we talk about commercial investments, it's people, it's education, it's also giving them the tools like demo equipment that they can go in, show the scanner and we think that's going to drive more demand for our products as we go forward. So we're really excited about SureSmile and equally excited about Byte, our direct-to-consumer business, which has done exceptionally well. And what we're seeing here is a situation where we're doing a better job of funnel management. Really looking at the quality of customers and the funnel, targeting a smaller customer base and converting them at a higher rate. Because a key part of this business is making sure your conversion rates and the cost of customer acquisition are a big focus, right? Because if cost of customer acquisition goes way up, the profitability goes way down. And we've seen these conversion rates really tick up, bringing the cost down. It's not only helping the top line, but also helping the bottom line and the profitability of this business. We've been open about saying, overall, Ortho is dilutive to our EBITDA margins. But we are seeing a path forward that could get that hopefully in line with the corporate average. If we continue to have really strong demand on the top line, get leverage through the P&L, take advantage of some of the manufacturing efficiencies where both of these product lines are produced in Mexicali. So lots of opportunities for us, including bringing down our financing costs, which has been an issue for the Byte business, given the profile of the customer there, which is lower income, more risk around not getting paid. And so we've done things around that as well to bring that cost down. So all things heading in the right direction. We are being cautious, though, just given a potential recession coming a slowdown. The Byte customer base is one where we probably see it first in our business, if there's a slowdown coming. And we haven't seen it yet, but we're being cautious as we think forward about what to expect for this business for the rest of this year.

Makes sense. And I mean clear aligner is when you take SureSmile and Byte together are on pace to be close to 10% of your business and then not to distant future. I guess just follow-up building on your comments on margins, are those -- when you look at those businesses together, are they profitable today? And then the goal is to get to margins north of the corporate average?

Yes. Both businesses are profitable. And overall, obviously, we're profitable. They're both profitable. We are doing things to get it more in line with the corporate average, but it is dilutive today. I think part of our plan about getting into $3 of EPS will include a step forward and a step up on profitability with our Ortho business. So that will be part of the building blocks also of how we get to a more profitable business going forward. But I would just tell you, we've made really good progress over the last 6 months. And as we look forward, I think more progress is going to be made.

Got it. And then I guess, how are you evaluating both the potential to maybe expand into new product categories that you're not in, like, I can't think of a major one that you're not in. But when you look at where it might make sense to kind of supplement what you have currently, how do you kind of go about that process? And then from a SKU rationalization standpoint, what are you kind of looking at to determine whether you want to maybe pare back what you're currently bringing to market?

I'll take the SKU bit. So on the SKU bit, we've done all the heavy lifting on Endo and Resto up to this point. So we know what SKUs, what families are profitable or growing or just that than the other. And so as I noted, we are now testing, can we eliminate those SKUs? First, we would want to migrate a SKU or a customer from SKU A to SKU B or Family A to Family B. So we are testing that. There will be some SKUs, some families where growth is lower and profitability is lower. So we're also going to test, can we increase those prices in those spaces? If where there is no alternative, can we increase those prices? And if it turns out that, that's sticky, then we will keep those SKUs and we will just increase the prices. And then so we're doing all that work right now. We'll hopefully have answers in the next couple of months. And I think the benefit, and Glenn alluded to this earlier on, the benefit is as we roll through into '24. So we have no benefit from SKU rationalization in any number for this year. We likely won't have any benefit until the back end of next year, at least that's our current thinking. And then subsequent to that, we believe it will afford us an opportunity to unlock more efficiency in our network, either through consolidation of our network or, for example, through efficiencies in our plan. So there is one -- there are a couple of product lines in particular that takes between 4 and 6 hours to move the line from manufacturing Family A to Family B. So if I can move Family A to Family B, then I don't need any 4- to 6-hour planned turnaround time or line turnaround time, so that unlocks tremendous efficiency. So all of that work is underway. And as Glenn mentioned in our Investor Day in November, we will lay out buckets of where we feel that we can contribute to the $3 of EPS in 2026 through things like SKU rationalization, network optimization, distribution center optimization, et cetera.

Yes. I think more broadly speaking, the first thing that Simon and the new leadership team did when we came in was really look at the portfolio and what changes need to be made. And I think the SKU rationalization piece was a big part of it. We don't see any real gaps in our portfolio. There are certain things that we can kind of fill in, I would say, and do some tuck-in deals over time. But I don't think there's anything that we're missing overall when you look at a pure dental play company. Having said that, there is an asset, well, expect that doesn't fit a pure dental play company. And I think we're looking at how to maximize shareholder value around this well spec business. And so the good news for us is there is no bad scenario for us with this business because as we look at the alternatives, one could be resell the business, and we've got a lot of interest from multiple buyers relative to this asset. But we would only sell it if we got the right price for it, and we want to make sure we maximize shareholder value in that means. Second is we can keep the business. It's a very good profitable business. It's growing very nicely. It's got some new products that are going to be rolled out, and there's opportunity to restructure this business. They have not been part of the overall corporate restructuring to date because we knew we're going to evaluate what to do with this. But I think we did keep it -- there's even more opportunity to drive further profitability in this business. And so that's an option that could maximize shareholder value to just we keep it to make it more profitable and grow it. And then there's other options outside of that as well that we're exploring. So there's different avenues we can go down, but that is the one asset that doesn't kind of fit if you look at a pure dental company, but we like the business, and we'll figure out how to maximize shareholder value.

And would an attractive divestiture be neutral or accretive to EPS? Is that what...

Yes. There's so many factors that would go into it because where is the share price out, question is going to be, what are you going to do with the proceeds. And we've been very clear. We're not going to do a big M&A deal right now. We just have to finish the integration that wasn't done previously. So we'd likely pay down some higher debt. We'd likely do a large share buyback and the question is where is the share price going to be? What does that look like? But we would not do the deal if we felt like it was a negative from a shareholder perspective. But it just depends on a lot of factors.

And I guess maybe just in the minute we have to wrap up on capital deployment. When you think about the deployment of free cash flow between debt paydown and share repurchases, it doesn't feel like you're overlevered by any means. Could you maybe just give us your perspective there in terms of where you want the business to operate long term? And then should we think about the rest of capital kind of being returned to shareholders through share repurchases since it doesn't sound like M&A is going to be a big...

Yes. No, it's a good question. And one of the good things I walked into in this job was a strong balance sheet and a very healthy cash flow business. And so I think we still have opportunity to focus on how to drive more cash flow as a starting point. So improving profitability, moving past these onetime cash outlays we have around the restructuring, as an example, the ERP system cost. And I think on the working capital front, there's things we can do around inventory, in particular, to drive better working capital. And so the starting point is let's make sure we can drive at least 100% free cash flow conversion going forward. And then what we do with that cash is really a function of, first, investing back into the business, making sure we're driving the top line, driving our R&D programs and funding it to a level that needs to be funded at. But we've committed to delivering at least 50% of free cash flow back to shareholders through dividends and share repurchases. And this year alone, we just increased our dividend in the first quarter by 12%. We announced $150 million ASR program. And so we'll continue to drive returns to shareholders through those means as we go forward with at least 50% going back to shareholders through dividends and share repurchases. But it is a very good, healthy cash flow business, but I actually think there's more opportunity for us to even improve upon that as we go forward.

Great. Well, we're over time. Simon and Glenn, thanks so much. We really appreciate it.

Thank you.

Thank you.