DENTSPLY SIRONA Inc.

Good day. Thank you for standing by, and welcome to the Q2 2021 DentSply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today. Andrea Daly, thank you. Please go ahead.

Thank you, Calandra, and good morning, everyone. Welcome to our second quarter 2021 earnings conference call. I'd like to remind you that an earnings call, press release, and slide presentation related to the call are available in the investor section of our website at www.densplyserona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions. In today's conference call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. And with that, I'd like to now turn the call over to Don Casey, our Chief Executive Officer.

Thank you, Andrea, and thank all of you for joining us this morning for the Dentsply Sirona second quarter earnings call. We are pleased with our performance in the second quarter. As we will detail today, the dental market continues to recover and demonstrate the underlying resilience that makes it attractive long-term. For the quarter, the company grew both versus 2020 and 2019, as well as sequentially quarter to quarter. The team also made progress against our strategic and operational priorities, giving us confidence as we head into the back half of the year. The pandemic remains a key consideration for us as we evaluate our performance for the quarter and plan for the remainder of the year. At this point, we feel the market is operating slightly below 2019 levels, with a continued recovery expected for the remainder of the year. As we navigate through the newest phase of the pandemic, we are mindful that there continues to be some ongoing impact in certain regions and some stresses to the supply chain. One constant throughout all of this, though, has been our team at Densply Sirona. Their performance over the past 18 months has been exceptional, and I would like to thank them for their tremendous commitment to our customers as they demonstrate every day. On today's call, Jorge and I will talk about our results for the quarter and provide our outlook for the remainder of the year and discuss our growth plans for the back half of 2021 and beyond. Moving now to slide six. As I mentioned, our financial performance for the quarter was solid and closes out a strong first half of the year. The results reflect the continued recovery of the market, progress on our growth initiatives, and good operating disciplines. Revenues reached $1.067 billion, up 104.6 percent on an organic basis. Our operating margin was 20.5 versus minus 8.6 percent during the prior year. Adjusted non-GAAP EPS was 71 cents compared to a loss of 18 cents last year, and cash flow was 214 million. To provide more details around the quarter, I will now turn the call over to Jorge.

Thanks, Don. Good morning and thanks for joining us. As a reminder, my remarks today will be based on non-GAAP financial results and less otherwise noted. Please refer to the reconciliation tables at the back of the press release and slides, both of which are posted in the investor section of our website. As Don said, our second quarter performance rounds out a strong first half of our fiscal year. In Q2, we deliver sequential quarterly revenue growth in both consumables and T&E. We also posted organic sales above pre-COVID levels in 2019. Let's look at Q2 in more detail. Versus last year, the business delivered organic revenue growth of 104.6% and reported growth of 117.3%. Compared to the second quarter of 2019, Reported sales grew 5.7 percent, and organic sales grew 3.1 percent. Both segments also grew versus Q2 2019. This performance against the 2019 baseline confirms the steady recovery trend we have seen in 2021. Gross profit was $626 million, or 58.7 percent of sales. This strong outcome reflects the continuation of a favorable mix similar to Q1, as well as the overall portfolio optimization work we have done to focus on higher growth, higher margin businesses. We're also seeing some challenges from a supply chain cost perspective, and our teams are working diligently to address them. Before I start discussing SG&A numbers, I would like to remind you that we now report R&D spend separately from SG&A. As we indicated last quarter, we began to ramp on planned SG&A investment spend in the second quarter. We tempered certain investments during the height of COVID, but we are now accelerating projects as the market further normalizes. we are increasing investments in sales and marketing to support our short- and medium-term growth plans in clear aligners, implants, and digital capabilities. Sequentially, SG&A increased in absolute dollars but remained relatively flat as percent of sales. Versus the prior year quarter, SG&A as percent of sales declined 12.6 percentage points to 34.4%. Spending on R&D was up 122.2% in the quarter to $40 million. We expect this level of spend to continue as we are committed to delivering innovation and great solutions to our customers. We are taking a disciplined approach to ensure alignment with our strategic priorities and track return on R&D investments. Operating profit was $219 million versus a loss of $42 million last year. The business delivered an operating margin of 20.5%, representing continued margin expansion from the realized benefits of our restructuring program. At the same time, we have been able to make meaningful investments in our business to fund growth initiatives. Net interest and other expense was flat versus last year, the non-GAAP tax rate in the second quarter was 23.9%. It decreased compared to 26.8% in the prior year quarter, which was a function of the changes in the U.S. versus non-U.S. pre-tax income. Non-GAAP EPS was 71 cents versus a loss of 18 cents in the prior year quarter. Moving to segment performance, versus the second quarter of 2020, consumables and technologies and equipment posted organic growth of 135.3% and 85.2% respectively. Both segments posted strong growth across all product categories. Consumable sales were 445 million, an increase of 138% versus the prior year. Growth was strong across all regions and in all categories. most notably within the endo and resto parts of our portfolio, which represent strategic priorities for our business. Additionally, the rebound in the preventative business, particularly in the U.S., continued in Q2. The consumables market has been resilient, and our team is executing well through the recovery. Currency favorably impacted consumables by 11.2%, offset by a reduction of 8.5% due to divestitures and discontinued products. Moving on to technologies and equipment segment results. T&E sales grew 104.6% versus the prior year, with a strong growth coming from all regions and product categories. The growth was driven by digital dentistry and equipment and instruments, which grew well in excess of 100%. The T&E segment also includes our healthcare business, which saw a smaller pandemic-related impact than the dental business in Q2 2020, resulting in a less significant year-on-year growth. Within T&E, the launch of our new Axios imaging unit continues to go very well. We're also seeing a strong momentum in digital dentistry with digital adoption and upgrade cycles fueling growth for PrimeScan. Our Clear Aligners franchise performed very well in the quarter. Sales growth is strong, and we are confident in the team's ability to deliver on the 300 million 2021 exit run rate shared previously. This quarter, we also announced the acquisition of Propel Orthodontics in a strategic partnership with 3Shape, further complementing our Clear Aligners offerings. We expect to see the benefits from these two initiatives starting in 2022. Currency federally impacted sales by 10.4%, as well as a benefit from acquisitions of 19%, upset by a reduction of 10% due to divestitures and discontinued products. Now turning to financial performance by region during the second quarter. U.S. sales were $366 million, a growth of 179.4% versus last year. Organic sales growth was 145.8%. We were pleased to see dental sales volumes return close to normal levels in both segments and across all product categories. European sales were 431 million, a growth of 99.5% versus last year. Organic growth was 91.8% compared to the prior year. Similar to U.S. sales, all areas in consumables and T&E rebounded well from the low point last year. Rest of the world sales were $270 million, a growth of 87.5% versus last year. Organic sales growth was 86.2%, reflecting the recovery in demand across consumables and T&E. The Asia Pacific region in particular has been an area of continued growth for our business. Next, I'd like to cover cash flows. In the second quarter of 2021, our operating cash flow was $214 million. It's $39 million improvement versus last year. The company finished the second quarter with cash on hand of $332 million and committed credit facilities of another $744 million. On a year-to-date basis, we deployed more than $241 million to fund strategic acquisitions, including Datum and Propel Orthodontics. We also returned a total of $134 million to shareholders through dividends and share buybacks. During the second quarter, we increased the quarterly dividend by 10 percent. The Board also authorized an increase to our share repurchase program, bringing the total amount to $1 billion. This is inclusive of the $260 million we had remaining from our previous authorization. Now let me provide an update on our financial expectations for 2021. We completed a strong first half of the year. We believe the healthy demand will continue through the second half of the year, driven by positive momentum in patient confidence and procedure volumes with the vaccine rollouts. Based on that, we are reaffirming our outlook for fiscal 2021. We also expect non-GAAP EPS to be close to the top end of the $2.75 to $2.90 range that we provided last quarter. Here are a couple of considerations with respect to our outlook. We have updated our assumption for the EURUSD exchange rate for the remainder of the year from 122 to 118. We estimate the impact from this change to be a reduction in projected earnings of approximately 5 cents in the second half of the year. Second, this full-year outlook includes commitments on investment spend that will be incurred over the remainder of the year. We will continue to operate with a high degree of operational discipline I will manage SG&A expenses in line with the pace of the commercial activities. Our key 2021 planning assumptions are listed within the supplemental materials posted on the investor section of our website. There are two risks to this outlook that are worth highlighting, COVID-19 and ongoing supply disruptions. We are watching closely how the situation evolves, especially considering the increased number of cases in some countries and the actions taken by governments to reinstate certain restrictions. Before I turn the call back to Don, we would like to share a quick update on our efforts around ESG. During the second quarter of 2021, we published our sustainability fact sheet and environmental scorecard. They are available for review on the sustainability page of our website. Additionally, in May, we announced a global partnership with FDI, the World Dental Federation, as one of five industry founding partners to lead the new sustainability in dentistry initiative. Also, we are planning to publish our sustainability report in Q3. As we look forward in our ESG evolution, there are a few guiding principles we are keeping in mind. First, We believe purpose and economic value intersect in a clear way in our business. Second, we want to be transparent about our progress by increasing the disclosure of key ESG metrics. And third, we are measuring and analyzing our ESG data, and we'll make sure we adhere to high standards of data integrity. With that, I will now turn the call back to Don.

Thank you, Jorge. I would now like to provide some perspective around our strategy and priorities for 2021 and beyond. Moving to slide 16 in the presentation. Our priorities have been consistent for the past three years. They are to grow organic revenues four to 5% long-term through a combination of organic and inorganic activities. The team continues to focus on improving margins and expects to achieve our goal of 22% by the end of 2022. Supporting this goal, our efforts to simplify the organization and take better advantage of our scale. This formula leads to our target of delivering consistent double-digit EPS growth. Slide 17 in the presentation details our strategy. We believe that Dentsply Sirona will grow long-term by delivering superior, integrative workflows and critical procedures. These workflows will be built around diagnostic excellence, easy-to-use treatment planning, and essential consumable products. When we do this, Dentsupply Sirona becomes the essential solution provider that improves outcomes for patients while delivering better efficiency and economics for the dental professional. Moving to the next slide. Dentsupply Sirona is unique in the space with category-leading brands in both the x-ray imaging and the interoral scanning spaces. Most companies have one or the other, but we are by far the biggest player with both. In the imaging space, Dentsply Sirona has a significant installed base comprised of many well-recognized brands that are at the heart of the dental practice. Our imaging brands include Schick, the Orthophos family, Galileos, and our new Axios Wide Field of View system. Dentists all over the world recognize these brands for their high quality and innovative features. For perspective, our imaging systems combine to take over 400 million digital x-ray images a year. What really differentiates Dentsply Sirona, though, is that in addition to our major presence in imaging, we are also a leader in the interoral scanning space. There is already a large and expanding CEREC base that includes PrimeScan and Omnican interoral scanners. While we continue to emphasize the advantage of chair-side dentistry, the company is also focused on expanding our presence in the rapidly growing DI space. Our PrimeScan entry, in addition to being the engine for chairside dentistry, offers outstanding performance as a standalone scanner. When dental offices start with PrimeScan, they get a great scanner that is easy to use and extremely accurate. But starting with PrimeScan is only the beginning. Our system offers tremendous versatility that allows for easy upgrading to full chairside capabilities and further opportunities to expand into other procedures such as clear aligners and implants. Aesthetic areas like clear aligners, implants, and complex restorations have been among the fastest growing in the dental market. These higher value procedures are made easier and more efficient when using digital tools. And we are the leader in providing these increasingly important treatment planning tools. Our well-recognized treatment planning brands include Sodexus, CEREC, SureSmile, Simplant, Atlantis, and MGuide. All of these treatment planning tools are fully integrated with our digital equipment. To give some context, in a typical year, there will be over 275 million patient cases done in Sodexus and over 4 million cases done through SERIC. A large volume of these cases also provides important fuel for our AI efforts. The final element of the strategy is linking the diagnosis and workflow tools with our essential consumables business. Every implant and endodontic procedure finishes with a restoration, which is why we are optimistic about our ability to drive consumables in the future. Our 4% to 5% growth target is built on a strong commitment to organic innovation, acquisitions, and other inorganic opportunities built on a foundation of global commercial excellence. Organic innovation is our lifeblood, and as Jorge mentioned, our investment in R&D has been increased by close to 50% reaching 160 million in 2021. This investment is helping drive a very robust pipeline for the back half of this year with continued progress in 2022. Moving now to slide 19. In September, we will be launching a comprehensive restage of our implant business. The restage puts together our digital base, historical product strength with other key elements like custom abutments and continuing education and training. The program starts with harmonizing all our implant businesses under the Dentsply Sirona brand name, including our rapidly growing MIS value implant business. It will include strong new products highlighted by PrimeTaper, an immediate load implant that will position us very competitively in the marketplace. We will also be updating our well-recognized Simplant treatment planning software and integrating it with CEREC. We're also focusing on our Atlantis custom abutment business which has very easy to use planning software for custom abutments. For perspective, we process well over half a million implant cases through Simplant and Atlantis on an annual basis. For the first time, we are offering an indentalist scanning program for CEREC, a major development in the implant space. The indentalist scan takes advantage of PrimeScan's unique accuracy and provides a whole new level of detail that makes full arch implant planning easier. While we are in the process of rolling out the Ossic Bone Regeneration brand to further enhance our implant offering and serve the rapidly growing immediate load implant segment in general. All our implant training and continuing education efforts will be harmonized and rebranded to provide a comprehensive implant curriculum for dentists. We've been working closely with our global implant KOL community, and they have started gaining experience with the product. Their reaction has been very positive. They are very comfortable with the new products in part because they are based on a procedure they know well. The revitalization of our implant business is an important piece of our overall growth strategy. This relaunch will begin in September and continue rolling out globally throughout Q2 2022. Moving now to slide 20. Our endodontic platform is another critical area for us. Beginning in September, we will be launching Protaper Ultimate as part of a new platform that will include new files, a biosymmetric sealer, and a new disinfection device. In addition, we will be launching multiple new motor systems in early 2022. The Protaper Ultimate system really takes performance to the next level. The files have been designed to cut and shape better and faster, requiring less files per procedure. The complete system will offer better cleaning and obturation as well. ProTaper Ultimate is the first major platform we have launched in the Indo area in several years. It has also been in the hands of our KOLs and has met with a very positive response. There are also several critical software upgrades and launches coming in the back half of 2021. These include a major SureSmile upgrade, 7.7. This upgrade improves the user interface for the GP, simplifying the case review screen, and enhancing the order entry process. We're also launching CEREC 5.2, a significant upgrade in PrimeScan that further enhances its speed and ease of use. This CEREC 5.2 upgrade supports the new indentalist scanning capability and differentiates PrimeScan in the marketplace. Early beta testers have indicated that this software upgrade provides a level of performance that makes it feel like a whole new product. There are also multiple new SureSmile product launches coming over the next two quarters. These include the introduction of a vPro product, as well as whitening in Q4. With vPro, which came as part of the Propel acquisition, SureSmile will be differentiated in the marketplace. All of these new products will be launched at our DS World event in September. Moving to the next slide. In addition to our organic innovation program, Jorge detailed some of the strategic acquisitions made over the last several months. All of these are designed to enhance our competitiveness in higher growth, higher margin categories, including clear aligners and implants. I wanted to add to his comments by saying that we are very happy with the Byte acquisition. We've had Byte for close to eight months and are very pleased with the integration program and excited about its future growth prospects. As mentioned earlier, we also closed on Propel in Q2, and we recently acquired Datum to provide us with a leading both but leading bone growth regeneration product to accelerate our implant businesses. These businesses are off to a strong start, and their integrations are on target. All of this is powered by our outstanding global commercial team comprised of over 5,000 people. We've been investing in a comprehensive Salesforce effectiveness program that will be close to completed in our 10 largest countries by the end of this year. Over the past two years, the team has also made solid progress against our goal of improving our operating margin and simplifying the organization. We've rationalized our manufacturing and supply chain, launched a comprehensive enterprise modernization program around key functions, all while maintaining strong expense discipline. As a result, we will deliver the $250 million savings target and the 22 margin goal on time. Moving to slide 23, in summary, We had a strong first half as the market recovered and the company made progress on key strategic goals. We are reaffirming our 2021 outlook. The dental market continues to show resilience as well as strong underlying fundamentals. We believe that Dent Supplies Saron is well positioned to deliver sustainable growth in the future. And finally, we are pleased to confirm that DS World will again be welcoming guests to Las Vegas September 23rd through the 25th at Caesars Forum while also offering a hybrid option. It is an excellent way to build momentum in the back half of the year. And with that, we can open the call to questions.

If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. And we will pause for just a moment to compile the Q&A roster. And your first question comes from the line of Elizabeth Anderson from Evercore.

Hi, guys. Congrats on the quarter, and thanks so much for the question. I guess on my first question, given the outperformance in the quarter, obviously strong, and you're pointing to a lot of things that point to continued momentum in the back half of the year, why not raise the guidance? I know you guys obviously pointed to being at the upper end of that, but it'd be helpful to hear your thought process around that a little bit more.

Good morning, Elizabeth. Yeah, good question. Listen, from a micro perspective, we feel really good about how the business is tracking. The execution by our teams has been solid all year, and the progression of the business, as demonstrated by the last several quarters, is consistent. Also, if you remember, we were the first company that provided guidance at the beginning of this year, and then right after the first quarter, given the performance we had in Q1, we actually raise our guidance in a meaningful way for the rest of the year. Q2, we performed very much according to our expectations. It was a solid quarter, and we believe the second half is going to be better than the first half. But as I pointed out in my prepared remarks, there's a few things to keep in mind, and we talk about this in Q1. First, we have investment spend that we move from Q1 and partially from Q2 into the second half of the year because we didn't spend at the pace we were planning to spend in the first half of the year. So that is important. And those investments, by the way, are intended to fund very important priorities for us. For example, clear liners. Our clear liners business, as we discussed, is growing and we are adding more resources because we are launching aligners in other countries. We are also making investments in our implants. Don talked about what's going on with our implant business, and we continue to make investments in our digital capabilities, both in terms of a go-to-market strategy and products that are important for our customers, as well as internal infrastructure. And then I also mentioned this in my prepared remarks. There is an impact from a planning perspective resulting from our change in assumptions relative to the euro exchange rate. So when we provided guidance at the beginning of the year, this was one of the assumptions that I shared with all of you. We said at the time that we were expecting the euro to be at the 122 level, and we have not seen that this year. So for the remainder of the year, we decided to change the assumption, and now we are using 118, that change in assumptions represents about five pennies in the second half of the year. So when you kind of look at all of those pieces and do the math, I think we feel good about being at the top end of our range. And we are never satisfied. We always want to do better, but we feel good about the consistency in our results and performance this year. So for all those reasons, that's why we have kept the guidance where it is now.

Got it. That's super helpful. And just talking about a little bit about more of the implant relaunch, how do you guys see that integrating with your 1DS program? I assume that's sort of something that you might talk about as we approach DS World or at DS World.

Yeah, Elizabeth, implants is going to be a big feature of DS World because, look, we really want to talk about being the first kind of digitally native implant company. So when we start talking about CEREC and the ability to do a dental scan and whatnot, you're going to see a fair amount of integration of our digital technology with easy-to-use treatment planning, principally aimed at the general practitioner, as a way of giving them a lot more confidence from stepping up from, you know, doing some procedures to making it a regular part of their practice. So, yeah, you're going to see a fair amount of that at DS World. You know, look, DS World is going to feature, we think, a pretty exciting lineup of new products, whether it was, you know, what we're doing in the endo space. We're really excited about the restage of our implant business. But also, again, Yeah, really, I don't want to undersell the CEREC 5.2. I mean, the folks who have been using this for a while really say it's like almost a new product because it cuts the time you need to do a scan. It enhances accuracy. And when we're adding specific treatment planning around things like in dental scanning, doing a real integration with SureSmile with 7.7, you know, we're really trying to make digital workflows the heart of everything we do.

Makes sense. Thank you.

Thank you.

And your next question comes from the line of Jeff Johnson from Bayard.

Thank you. Good morning, guys. Hey, Don, I'd like to take your pulse maybe on kind of the two-year growth rates. You know, in the first quarter we had you kind of versus 1Q19 at about 7%, maybe a little north of that. As Jorge said today, about just over 3%. You know, your commentary about the markets continuing to improve, and that seems consistent with our checks. So I'd just like to better understand why maybe that two-year growth rate came in a few points, and it seemed like it was pretty evenly split across all three of your geographies. We have all three of them maybe three to five points slower on a two-year basis versus 1Q. So just maybe help us understand that dynamic.

Yeah, Jeff, look, 1Q came in very strong. I think that was kind of the quarter that everybody felt that, okay, things have returned some semblance of normalcy, and I think there was a fair amount of catch-up across the board. As we look at 2Q, you know, we saw pretty, you know, again, consistent, whether it's consumables, technology, and equipment. By the way, Jorge, in his prepared remarks, called out, you know, our well-spec business, you know, the healthcare business, which obviously wasn't really impacted by the pandemic. So, you know, as that's a piece of that business, you kind of have a normal growth rate there compared to, you know, the really significant dental growth rates of, you know, triple digits. The only other thing I'd point out, Jeff, when you start looking versus 2019, there's two points I'd direct your attention to. The first is, remember Q1, Q2 in 19, we were coming off the prime scan launch and we were actually a little bit backordered in there with a lot of that actually delivered in the first and second quarter. And the second point in that around the consumable business, we had really begun to implement a comprehensive program to change how we promote things and, you know, looking to focus much more on 1DS type programs that were aimed directly at creating retail demand as opposed to, you know, focus on wholesale activities. So there's, you know, we were working through that specific thing. If we hadn't been pandemic, if that's even a word, Jeff, you know, we would have seen that kind of level out through 2020. So you had that distortion associated with the pandemic. And so now when you're looking at 21 versus 19, you know, we're working our way through that comp, which might have been a little bit higher in 19 versus what we're seeing now as we level load and really focus on stuff like, you know, 1DS as our preferred promotional program.

Yeah, understood. And just as a follow-up question, just on Byte, I try to ask you this question each quarter, and you defer, and I'm sure you will again this quarter, but let me ask it, I guess, this way, which is the 19% acquisition growth in T&E, our assumption is Propel was kind of a vertical integration deal, so not a whole lot of contribution on a revenue perspective there relative to what had been happening. Datum, generally immaterial, a little bit of contribution. So is it fair to think about that 19% acquisition growth in T&E specifically, largely or majority of that being driven by Byte, and that would suggest kind of sequentially Byte stepped up probably 20% plus. Is that reasonable as well? Thanks.

Yes. Easy enough. Thank you.

And your next question comes from the line of Tycho Peterson from JP Morgan.

Hey, thanks. Don, I want to go back to the implant relaunch. I'm just curious, you know, how much of this is trying to revitalize growth from new products? How much of this is reorg? And, you know, how are you thinking about premium versus value? And can you give us a sense of, you know, how material you think this could be to the business, this relaunch over the next couple of years?

Yeah, it's a couple things, Tycho. First, we've been very public about saying, you know, we're unhappy with our implant performance. And, you know, basically we thought it was a two-stager where, look, we've got to get back to growth, part one, and then we've got to grow with the category or faster than the category. And you know this. Historically, we've been really kind of balkanized around our implant approach. You know, we had four premium brands between Ankylos, Zyve, Astro and Astro EV, I don't think people really understood we had a very competitive value brand in MIS that's actually been growing at, if not faster than the market. The other thing, you know, we've never really called out the, you know, our customer button business, which is, you know, the brand name we have is Atlantis, which is, again, growing at, if not faster than markets. So when we stepped back, we said, hey, look, we have a fairly aggressive new product set of programs, and we dovetailed the new products as well as the digital offerings. We've really, I think, done a nice job upgrading Simplan and integrating it with CEREC. So when we put this all together, we think it gives us the opportunity to reset our brand image and our promise of across the marketplace. So I would tell you, I think there's going to be very significant. I mean, if we had been growing our implant business at market levels, that would be significantly higher than what we've performed at in the last two to three years. So again, we feel good that This gets us – it's not going to happen instantly, but we feel good as we start exiting 22. We want to be extremely competitive in this marketplace and growing at market levels. And then in terms of Tyco value, premium value, they really kind of go hand in hand. I mean, the growth rate of our MIS business has been faster than our premium business. I think with the relaunch, we'll accelerate the premium side, and we'd like to see both of them growing at market levels.

Okay. And then a follow-up on the ortho outlook. I appreciate your commentary on bite a minute ago. You know, there's been some concern, I think, over kind of web traffic dropping off there, but it sounds like, you know, the business is doing, you know, incredibly well. As we think about that $300 million target you've laid out, you know, Propel now gets added to that. I know it's small today, but how much of that $300 million target do you think will be from Propel if we go out a couple years?

Taiko, for this year, the impact from Propel is really, really minor. It is, for the most part, a vertical integration acquisition, but we have a lot of interesting ideas for that business, how to deploy it across the portfolio, SureSmile International. We're working on those plans. There's a lot of work going on there, but we won't see the impact from those efforts until 2022. Thank you.

Yeah, and, Tycho, I wanted to add one other comment because you mentioned the unique visitors and, you know, some concern about that. You know, just a couple general comments, and then, you know, you can follow up. You know, the first is, you know, Byte is performing as we expected it to, and one of the things that we were excited about the business is, you know, we thought, As you look at their unique visitors, there's an opportunity to focus on segmenting it. And actually, you know, not all unique visitors are made the same. And one of the things that we've been focusing on is doing a better job of targeting over time. So, you know, as we look at that business, it's performing above expectations. And that incorporated some changes that we were making. You know, the stuff that we get excited about over time, though, is, you know, look, we think Byte continues to represent a great opportunity to bring its underserved population, you know, which a lot of people in Byte aren't necessarily regular dental customers, and how do we bring them into the fold? If somebody just spent close to $2,000 on doing, you know, a Byte treatment, you know, we want to help them really understand to continue – making sure that they get value out of that procedure. You know, they go see their dentist, go get a cleaning. And then we're going to be working with the dentist to follow up on things like, you know, how do you do a retainer and other things. But if, again, one of the things we were attracted to around bite was really the fact that they were hitting underserved populations that weren't really exposed to dentists. But we think we have a unique opportunity, given the role we play, to bring them into the dental fold.

Great. Last one. I appreciate, you know, you're keeping guidance unchanged here, given kind of the uncertainties around the pandemic. I'm just curious if you could comment on what you're hearing from your dealers as they think about inventory levels and kind of caseloads going back up, and then also what you're hearing from DSOs, you know, as they're thinking about managing, you know, a broader range of practices through, you know, the next wave of the pandemic. Thanks.

You know, Tycho, the DSOs are telling us that traffic by and large, is getting pretty close to 19. It really depends on where they are and what part of the country, how much exposure they have to, you know, the south versus the east, west, or north. But, you know, for all intent and purposes, you know, we think it's a couple percentage points versus where they are in 19. When we talk to them and whether you talk to kind of the big, you know, the close to 600, 700 offices, or even, you know, kind of large group practices, people by and large think the vaccine and, you know, the fact that some people haven't been to the dentist in 18 months, you know, they're really kind of trying to get back in is going to lead to a pretty steady recovery. You know, so our expectation is even if the Delta variant, you know, kind of forces, you know, people to shut down, I think the dental community has learned to deal with that and proactively reach out to their patients and assure them about their safety. You know, in terms of dealer inventory, you know, first, we've been super happy with our dealer partners. I mean, you know, both the large and small. You know, they've done a really good job, in our opinion, on helping us buffer, you know, some pretty radical supply chain swing, not supply chain swings, demand swings. If you look at where we were a year ago, it was basically shut down, and now we're all the way back to 19. And our customer service levels, as we track it, So the dentist have been pretty good, I would tell you they've been challenged to maintain inventory, you know, obviously, a lot of their planning looks back on kind of a last six month nine month program which would incorporate pandemic reduce you know pandemic related reductions. And, you know, we're working with them every day to make sure that they're getting adequate inventory to service the customer needs. And, you know, that's an ongoing process. You know, and obviously they'd be in a better position to comment on how their aggregate inventory levels is. But we're working with them. Okay. I appreciate it. Thanks.

And your next question comes from the line of Nathan Rich from Goldman Sachs.

Hi, good morning. Thanks for the questions. Don, maybe starting a high level, I appreciate all the details on the new products that you have coming in the back half of the year. I guess kind of looking at the company historically, it seems like there's a greater deal of innovation than what we'd maybe typically see in a normal year. It sounds like the demand for digital technology also remains strong, and I guess looking So what I'm asking is, you know, do you feel like 4% to 5% is the right benchmark as we think about top-line growth for next year as you get the benefit from some of these launches? And I'd just be curious to get your kind of high-level thoughts on kind of what the main factors are as we think about kind of growth in 22.

Yeah, thanks, Nate. You know, we're comfortable with a 4% to 5%. I mean, obviously, we're saying, look, digital is going to be really important. I think we're well-positioned, much better positioned going forward in implants. And Endo, we've talked extensively about what we think about short, smile, and bite. There's parts of the business we think are going to be a little bit more challenged. And if you look at some of the things that Jorge has talked about from a portfolio management perspective, things like getting out of traditional lab, the analog lab part of the business and other things. But, hey, look, we've said a number of times that we would like to exceed the four to five. I think Jorge said that a minute ago. But right now, look, for 2022, I would tell you the back half of 2022 is going to see more benefit from the introductions, things like vPro that are going to go out with Shore Smile and other things. So that's how we look at it. But we were six months ago talking about three to four. Now we're talking four to five. And, you know, as we've raised that guidance up, we want to be able to consistently deliver, you know, performance. So... We aspire for more, Nate. Believe me, we aspire for more.

Appreciate that. And then, Jorge, maybe just following up on your comments on the supply chain pressures, can you just go into a little bit more detail on where you're seeing that, maybe what products or categories you're seeing that, and kind of how we should think about the potential impact of that in the back half of the year? Sure.

Yeah, Nathan, and just to clarify, we financially, we have been able to manage the challenges really well. The supply chain team has done an outstanding job of managing situations like, for example, we talked last quarter about some risks of supply disruption relative to certain electronic components, right? And the team has done a great job doing that. we are seeing inflationary pressures, um, on the shipping cost side. And, um, and the team has, has handled those well. Um, and, and overall with COVID, uh, there's always concerns about, um, there are certain suppliers and certain parts of the economy that are not back to normal levels from a production standpoint. And so those are things that we are watching closely and, um, All of our projections, the guidance, include the risk as we see it. But again, for the most part, the team so far has done a great job of managing those things. But we thought it was worthwhile mentioning because it's happening across the board.

Great. Thanks for the questions.

And your next question comes from the line of Jason Bednar from Piper Sandler.

Hi, this is Karine on for Jason. Thanks for taking the questions and congrats on the quarter. So first for us, not too long ago, you announced the private labeling of Sure Smile to Aspen. And we're just curious on how that partnership is going so far. How has uptake been in the early launch of that motto brand? And then is that something that you've already baked into your original guidance, these private labels, or is that on top of what you've already stated?

Yeah, thank you. Actually, we didn't announce that. You know, there's been a lot of discussion about that in the marketplace. We are supplying Aspen. You know, we're very proud of our partnership with Aspen. We think they provide, you know, great level of products and services to their customers, and we're proud to partner with them. You know, in terms of how's it going, it'd be better to ask them. And then just, you know, in terms of that baked into our numbers, yeah. And, again, we've given kind of very general numbers about what we think our ClearLiner business is going to look like between Byte and SureSmile, and those numbers are incorporated in there.

Great. Thank you. And then just to dive a little further on the Byte acquisition, can you provide any color on what some of your marketing efforts are there for the balance of the year and into 2022 to – make sure you stay competitive with those other DTC brands that are really pushing marketing and advertising right now?

Yeah, I mean, you know, first, there's a lot of things that are going to go on with Byte that we're extremely happy with. I mean, we, first, from a marketing in the U.S. perspective, you know, we expect to market at competitive levels. Some of the things we're beginning to do, though, is, you know, we have been a very paid social brand. kind of focused business. We're looking at bringing other areas in, whether that's search engine optimization or whether that's recos from other places, like as we begin to bring this into the dentist's office. We've got some great new products coming and some updates around that. Obviously, as Propel has become part of our business, we're going to look to continue to differentiate that business by virtue of our vibration technology, which we think it makes the byproduct differentiated in the marketplace. And, you know, as we get out in 2022, I mean, one of the things that we get excited about the Clear Aligner business in general is, you know, whether it's the direct to consumer or whether it's through the dentist channel, I mean, we're still in the very, very early stages of penetration of this business. I mean, if you look at people who would be eligible for a Class I treatment, you know, do we think we're at 10% penetration in the U.S.? Probably not. The other opportunity we have with Byte, as well as with SureSmile, is how do we take this out of the U.S.? Jorge mentioned in his prepared remarks that, you know, at this point we're probably in getting close to 10 countries now with SureSmile, and we're going to look to expand that. And we think Byte has got real application because it's a unique product and it's a unique way to reach potentially underserved populations outside the U.S., so we think it can grow that way. And I've mentioned a couple times, we really think that we have an outstanding product relationship with the dental community all around, and one of the things that we'd like to do is take a lot of the traffic that we're generating with BITE and all these unique visitors and, again, introduce them to dentists that would be part of our curated network where they would have a prime scan, and we believe that they can really help not only make sure that the treatment that was done with BITE is being held on, give them a cleaning afterwards, give them a retainer afterwards, But, you know, potentially start a relationship with that dentist because, you know, we think less than 80% of the bite unique visitors have a regular relationship with a specific dentist.

Thank you.

And your next question comes from the line of Michael Cherney from Bank of America.

Hi, this is Alan, and for Mike, thanks for taking the questions. Don, you mentioned a few new product launches around DS World this year. I guess, how should we think about the revenue impact from DS World relative to prior years and versus what's embedded in the guide, or is that more of a 22 theme? Thanks.

I'd almost split the question up, Alan. What are we expecting from a revenue boost on DS World? It was interesting. Last year where we basically ran the virtual event, one of the things we saw was you didn't necessarily see the urgency to buy around a specific two-week period. We looked at the purchase pattern was spread out over three to four months. Obviously, when you're doing virtual in the middle of the pandemic, we probably didn't get as much of a pop as you might have seen in prior years now we we believe that we're going to see a very successful PS world this year we've got some really good new products we've got excellent promotions in place with our our dealer partners so you know, we think we're going to have a good DS world. Now, you know, how does that compare exactly to 2019? Again, it's going to be a little bit hard because, you know, we're still working through, this will be probably the first really big dental event held globally. And, you know, we're going to see how it works. But, you know, we have, again, we have a, we think a very, very full new product lineup. We've got great promotions in place. We're excited. By the way, it's not just the products we have, You know, close to 200 continuing education courses. You know, sign up for DS World right now has been really positive. It's on track with what we saw in 19. You know, in terms of new products, you know, we kind of talked, you know, I group them into three things. There's the implant. There's the endo. There's the ensure smile is kind of things that you want to focus on that are specifically product as opposed to some of the software upgrades. Look, the implants, it's not going to be a spike. I mean, one of the things we notice in our equipment business, I mean, you launch a new piece of equipment, there's obviously a big spike. With, you know, kind of implants endo, we think you're going to see a more gradual impact of those. I mean, we get the whole, we get everything out virtually around the world by, you know, kind of the end of the first quarter, 22. Some of that might spill into the second quarter, you know, things like the endo motors and You know, there's a lot of supplemental implant products that will follow off what we're launching at DS World. So, you know, I tend to look at that more as a back half, you know, impact from a revenue perspective than, you know, even loaded over the course of the year.

Thank you. Thanks.

And your next question comes from the line of Liza Garcia from Wolf Research.

Hey, guys. Congrats on the quarter. Thank you for taking the questions and squeezing me in. So you had mentioned kind of the rebound in the preventative visits, and it sounds kind of like just to confirm that the U.S. is kind of almost at pre-pandemic levels. I just want to confirm that that's kind of what you're seeing, and also could you maybe discuss what you're seeing across other geographies on the preventative side and how you're thinking about kind of that trajectory with respect to the guidance and into 22?

Yeah, good morning, Liza. Yeah, one of the reasons we wanted to mention that specific category is because we believe it's a good barometer for just overall dental office traffic and volume. And so it's been great to see how that category has rebounded really well. And it happened in With a few exceptions, a few countries, it's happening pretty much across the globe versus 2019 and versus 2020. So we're seeing good recovery in that market. Again, there's probably a couple of countries where COVID situation is still pretty complicated, and so there's a lot of restrictions. But in most markets, it's performing well.

Great. And then just with regards to BITE and bringing the manufacturing in-house, can you remind us the timelines around that and then kind of what the incremental opportunity really is for bringing the product in-house?

Yeah, so we are working on that. That is probably going to be happening in the Q1 2022 timeframe. And the economic benefit from that insourcing is, it's already factored into the projections we have for the foreseeable future. So in 21, there's no impact, essentially. And then beyond, it's part of the business case. When we did the acquisition, we looked at the opportunity to bring that manufacturing capabilities, combine it with our Sure Smile footprint, and achieve some synergies there. So it's part of the business case. Thank you. Thank you, Liza. Next question.

We've got time for one more question. And your next question comes from the line of Yai Chen from HC Wainwright.

Hi, good morning. This is Mazan for Yicheng. We just wanted to gauge some more color on the Fast Track mobile app acquired from Propel. We were wondering if you're developing it to be applicable to multiple clear aligner assets in your portfolio. And if so, if you could talk us through how you're doing so and if the launch of the app will coincide with the rollout of vPro. Thanks.

Yeah, Guy, thanks for the question. Actually, Matt, thanks for the question. Yeah, the app that we got, we're really excited about. You know, it absolutely gives us an opportunity to understand whether people are using the vibration technology, and it gives us just another way combined with Byte that we're creating an interactive platform with all our unique visitors. We will be rolling that out as part of both Byte and SureSmile. Obviously, SureSmile is going to get that in Q4. You know, in terms of, I don't necessarily think we're going to look at that as kind of a separate app, but I think it's part of the ongoing, you know, again, we have a very interactive relationship with our bike customers. I mean, we talk to them fairly frequently. So that'll become part of that process. Ultimately, though, you know, we believe that the vibration technology has application well beyond just SureSmile and Byte. We think it's something that We will continue – by the way, Propel had sold that beyond the U.S., but we will continue offering that to orthodontists and general dentists as a separate product if they want to combine it with their clear liners, and the app would be available for that. But the app's pretty cool. It really helps people – it helps us understand if we need to – kind of give a nudge to a potential patient. Hey, we noticed you haven't used your vibration technology in 7 to 10 days. Remember of the wonderful benefits. And, again, we think that's part of the, you know, kind of the customer experience. And we're really spending a lot of time not only on SureSmile but as Bite as well as to make the, you know, the post-purchase experience really differentiated over the long term.

Sounds good. Thank you, and congrats on the quarter.

Okay. Thank you. Thank you.

All right. That concludes our call today. Thank you all for participating. Have a nice day. This does conclude today's conference call.

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