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spk16: Good day and thank you for standing by. Welcome to the Dentsupply Sirona fourth quarter 2023 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 the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrea Daly, Vice President of Investor Relations. Please go ahead.
spk25: Andrea Daly Thank you, Operator, and good morning, everyone. Welcome to the Densply Sirona fourth quarter 2023 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, Glenn Coleman, Chief Financial Officer, and Andreas Frank, Chief Business Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investors section of our website at www.densebyserona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may 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 recently filed Form 10-K and any updating information in subsequent SEC filings lists some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business's financial performance. enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to the prior year quarter unless otherwise noted. A webcast replay of today's call will be available on the investor section of the company's website following the call. And with that, I will now turn the call over to Simon.
spk22: Thank you, Andrea. We appreciate you all joining us this morning for our Q4 2023 earnings call. Today, I'll begin by providing a summary of our recent performance. Then Glen will cover Q4 and full year 23 financial results and share our 2024 outlook. I will finish by providing a strategic operating update. Now, starting on slide three, We achieved over 2% organic sales growth in 2023, above our projection, driven by growth in three of our four segments. The ortho business saw double-digit growth in both Byte and SureSmile. The EDS segments posted growth in all regions and product categories, and in total delivered mid-single-digit growth, while WellSpect Healthcare generated high single-digit growth. Through the fourth quarter, the macro environment remained challenging. The CTS segments declined slightly more than expected, mainly due to equipment and instruments with softness in imaging, which we anticipate will continue in 2024. This was partially offset by an increase in demand for CAD-CAM, and particularly for intraoral scanners, which was another bright spot for us. In January, we conducted our latest customer survey with over 3,500 respondents from 12 key geographies. Sentiment in the U.S. improved slightly about the future of the industry and their practices. German and Australian customers continue to express a negative outlook, and this is largely unchanged from the last quarter. The survey also suggested that patient demand in China continues at reduced levels, but with no sequential deterioration. EBITDA margin for 2023 came in at 17.4%, and adjusted EPS was $1.83, both in line with our guidance. As we stated at the beginning of the year, we consider 2023 a transition year for Dents by Sirona. We promptly and decisively executed several critical transformation initiatives to achieve the necessary cost savings, enabling strategic reinvestment for hygiene and growth. We made significant progress on these initiatives, which have strengthened the foundation of the business and set us on a path to improved future performance which we highlighted for you at our Investor Day in November. As we have said, we believe 2024 will be an inflection year for us, delivering double-digit adjusted EPS growth, largely due to the benefits of our transformation initiatives. We remain laser-focused on executing our strategy while simultaneously strengthening our foundation, developing new capabilities, and implementing greater discipline and rigor across our business. Moving to slide four, I would like to share some selected business highlights. In 2023, we continued to bring innovation to the market. We enhanced our DS core offering, expanding the platform, and enabling new clinical functionality. On the last earnings call, I shared that we had already exceeded our DS core target for 2023, and as an update, we ended the year with over 14,000 unique accounts. We believe that DS Core will play an ever-expanding role in shaping dentistry as the industry undergoes a digital evolution that's connecting technology and clinical workflows. We're also focusing on digital print materials, and we recently launched Lucitone for PrimePrint and expanded our splints offering. We believe we are well positioned to advance digital print materials and continue to see opportunities to accelerate the adoption of 3D printing in dental practices. as a standalone office capability or as a complement to in-office milling. As previously communicated, we reinvigorated our focus on clinical education offerings. We know that digital dentistry requires hands-on, in-person training to facilitate practice integration and unlock the potential of digital tools, and we are committed to providing this for our customers. In 2023, we were proud to offer over 9,200 training and education courses globally through live, online, and hybrid formats, which reflects about a 30% increase compared to prior year. We also expanded our reach with digital learning platforms through a partnership with DTI that started in the fourth quarter. Live events play an important role in enriching our clinical education platform. Earlier this month, I had the opportunity to attend our second DS World event in Dubai. This event featured courses on many dental disciplines with over 1,000 participants in attendance. And this is the first of several DS World events we have planned this year. In the fourth quarter, we also conducted several implants-focused events in the U.S. and Europe. Building on the success of these events, we look forward to hosting our Implant Solutions World Summit in Miami in the second quarter. We continue to progress our sustainability strategy. In 2023, we achieved a new record for our injury and illness prevention rate. The safety of our employees is of the utmost importance, and we are very proud of this accomplishment. Our well-specced healthcare business also continues to lead in this area and recently won an award for sustainable medtech innovation for the use of renewable plastic in Lofric L, a female urinary catheter. We were also named to Sustainalytics 2024 ESG top-rated companies list earlier this month. Wrapping up the highlights, we recently announced an expansion of our collaboration with ADEC, introducing a new integrated product offering that will bring together PrimeScan Connect and certain ADEC delivery systems. This builds upon our existing collaboration with ADEC that integrated Cavitron into their platform. The new offering creates a fresh solution to meet customer needs, empowering dental professionals to streamline practice workflows and elevate the patient experience. And with that, I will hand the call over to Glenn for the financial update.
spk07: Thanks, Simon. Good morning and thank you all for joining us. Today I'll cover several topics, including our fourth quarter and full year 2023 results, as well as our outlook for 2024. Let's begin on slide five. Our fourth quarter revenue was $1.01 billion, representing reported sales growth of 2.9% and organic sales growth of 1.9%. Foreign currency positively impacted sales by approximately $10 million or 100 basis points compared to the prior year quarter. On a constant currency basis, the key highlights in the quarter included strong sales performance in China, which grew over 35%, double-digit growth in both well-specced and implants and prosthetics, and high single-digit growth in our global aligners business. Despite higher sales, EBITDA margins declined 40 basis points in the quarter, mainly due to year-over-year decline in gross margins, which contracted 100 basis points. This was largely driven by unfavorable country mix due to lower margin implant sales in China and unfavorable product mix within our endo and CAD-CAM portfolios. Adjusted EPS in the quarter was 44 cents, down 4% from the prior year, largely due to lower gross margins and a higher tax rate. In the fourth quarter, we generated $160 million of operating cash flow, up 13% year-over-year, driven by improved inventory management and the timing of accounts payable compared to the prior year. Free cash flow conversion was 128% compared to 110% in the prior year. In the fourth quarter, we repurchased $150 million of stock at an average price of $30.73 and paid $30 million in dividends. For the full year, we returned $416 million to shareholders. Let's now turn to fourth quarter segment performance on slide six. Starting with the essential dental solution segment, which includes endo, resto, and preventive products, organic sales grew 3.4% driven by growth in all three regions and in each product category. EDS benefited from stable patient traffic and price increases implemented earlier in the year. Shifting to the orthodontic and implant solution segment, organic sales grew 10.6%. Aligners grew high single digits. Specifically, SureSmile grew 13% and continues to benefit from market share gains, new product offerings, and differentiated outcomes. Additionally, we believe the recent launch of our Sure Smile Simulator within DS Core will benefit future sales. Our direct-to-consumer aligner brand, Byte, grew 6% despite a constrained financing environment. With the recent uptick in new customer interest, we are ramping our investment in treatment planning, clinical support, and sales, which supports our anticipated greater than 20% growth in Byte this year. We also expect SureSpinal to grow double digits in 2024. Moving to implants and prosthetics, double-digit growth was a clear bright spot in the quarter, driven by VBT and market share gains in China and higher demand in Europe. Globally, premium and value implants saw similar growth rates. Our U.S. implants business was down slightly in the quarter, but showed less of a decline than previous quarters, and we anticipate a return to growth in 2024. Wrapping up our dental performance, CTS, our connected technology solution segment, saw organic sales decline 8.3% versus the prior year quarter. Our global CAD-CAM business grew low single digits, driven by increased demand in the US, while the equipment and instruments business declined double digits in the quarter. Moving to well-specced healthcare, Organic sales grew 16.9%, driven by growth in Europe and the U.S. As a reminder, WellSpect had an easier comp as the prior year quarter was impacted by a one-time pricing matter in Italy. In addition, new product launches contributed to better-than-expected year-over-year growth. Now let's turn to Slide 7 to discuss fourth quarter financial performance by region. U.S. sales declined 1.2% due to lower sales of equipment, instruments, and implants, partially offset by strong growth in aligners and CAD CAM equipment. U.S. CAD CAM distributor inventory levels decreased sequentially in the quarter by approximately $4 million and ended the year essentially flat compared to the end of 2022. Relative to historical averages, distributor inventory levels remain low. Turning to Europe, the region returned to growth in the quarter with contributions from WellSpec, EDS, and OIS. SureSmile grew over 25% with notable growth in Spain, France, and Germany. We also saw an increase in implants demand driven by growth in MIS and higher conversions from our legacy product Zive to our new DS OmniTaper implant. Our CTS segment continues to see lower volumes due to recessionary impacts, particularly in Germany, which is our largest market in the region. Excluding Germany, Europe organic sales grew 4.1% compared to the prior year. Rest of world organic sales grew 5.4% in the quarter, led by China, which delivered significant growth in implants. In 2023, we saw a more than 40% increase in our China implants customer base. The public and private sector both continued to experience significant market growth. Sales in Japan declined during the quarter as the prior year quarter benefited from government rebate programs on certain equipment. Wrapping up Q4 regional performance, Latin America grew high single digits in the quarter, led by solid demand and sales execution in Brazil and Mexico. We saw an improvement in intraoral scanner volume, driven by the launch of PrimeScan Connect, and sales of refurbished Omnicam units in the region. In the first half of 2024, we plan to launch SureSmile, DS-Core, and PrimePrint in Brazil and other countries within the region. Now let's turn to slide 8 to briefly cover our full-year 2023 performance. Sales for the full year were $3.97 billion, representing reported sales growth of 1.1% and organic sales growth of 2.2%. Foreign currency translation negatively impacted sales by 110 basis points due to a stronger dollar versus most major currencies. Key highlights for the year included double-digit growth in aligners and high single-digit growth in China due primarily to significantly higher volume in implants which more than offset the pricing declines associated with VBP. The largest challenge we saw in 2023 was lower volumes in equipment and instruments, which we attribute to recessionary concerns and higher interest rates in the U.S., Germany, and other developed markets, as well as competitive pressure, and we see this trend continuing into 2024. EBITDA margins contracted 210 basis points to 17.4%, due to cost inflation and higher investments in the commercial organization, clinical education, and infrastructure, partially offset by restructuring benefits. Even the margins were in line with our guidance, and adjusted EPS of $1.83 was at the midpoint of our range. Operating cash flow was $377 million, down 27% year over year, driven by higher investments, restructuring cash outlays, and unfavorable timing of accounts receivable and accounts payable. Free cash flow conversion was 58% compared to 81% in 2022. As we mentioned during our recent investor day in November, our long-term goal is to achieve 100% free cash flow conversion on a consistent basis once we move past the cash outlays associated with our transformation initiatives. The company continues to maintain a strong balance sheet and finished the year with $334 million of cash and cash equivalents on hand, with a net debt to EBITDA ratio of approximately 2.6 times, which is slightly above our long-term targeted rate of 2.5 times due to the fourth quarter $150 million share buyback. Today, we also announced a 14% increase to our dividend. This marks our fourth consecutive year of double-digit increases to the dividend, and demonstrates our confidence in our long-term plan. With that, let's move to slide 9 to discuss our expectations for 2024. For 2024, we expect organic sales to be flat to up 1.5%, which represents a net sales range of $3.96 billion to $4.02 billion. We expect FX to be a slight headwind to reported sales based on current rates, and anticipate stronger organic sales growth in the second half of the year as we remain cautious on the macroeconomic backdrop for the next several quarters, particularly for equipment. We expect our EBITDA margin to be greater than 18% in 2024, an expansion of approximately 100 basis points year over year. We also expect margin improvement as we progress through the year based on the timing of investments and restructuring savings. We project an increase in our full year tax rate due to geographic income mix and expect the Q1 tax rate to be higher than the full year as we finalize our 2024 tax planning initiatives. We expect adjusted earnings per share to be in the range of $2 to $2.10. For Q1, we expect organic sales to be roughly flat to the prior year. with slightly lower reported sales due to an anticipated FX headwind of approximately $10 million. On a sequential basis, gross margin is projected to improve in Q1. With this, we expect EPS will be up mid-single digits year over year. In Q1, we expect to see growth in OIS and well-specced healthcare, all set by declines in EDS due to a tougher comp and CTS based on current trends. Let's turn to slide 10 to discuss the puts and takes in our 2024 adjusted EPS outlook. Organic growth at the midpoint is expected to contribute $0.04 to earnings. Our projected cost savings from the restructuring plan should reach the run rate of $200 million in 2024. Net of investments, we expect this will contribute approximately $0.13 of EPS. Key investments for 2024 include ERP expenses, bite and sure-smile expansion. We expect net investment hedges will be a $0.07 tailwind to EPS, consistent with our previous comments at our November Investor Day. We are forecasting that other items, namely cost inflation, tax, and share count, will net to a $0.02 headwind to EPS. These drivers combined to ingested EPS outlook of $2.05 at the midpoint of the range of double digits versus the prior year. With that, I will now turn the call back over to Simon.
spk22: Thank you, Glenn. Moving on to our strategic update starting on slide 11. Our strategy is clear and remains unchanged. Digitalized dentistry deliver customer-centric innovation in products and services for oral health and continence care. serve our partners effectively, and accomplish these goals through a dedicated and engaged team with compliance and quality always at the core. We continue to actively implement and advance all five of our strategies. With strengthening execution discipline, continued process improvements, and the strategic investments we are making in the company, we believe we can advance the performance of this company and create increased value for our stakeholders and employees. Now moving to slide 12, let me discuss our foundational initiatives. During 2023, we established many of the fundamental elements necessary to purposely carry out our plans for 2024 and beyond to transform this company across product lines, regions, and operational areas. With the restructuring program largely complete and on track to deliver $200 million in savings this year, We are shifting focus to the foundational initiatives we have prioritized for 2024. We spoke about these at our investor day in November, and we continue to make progress on each of them. Let's start with supply chain transformation. Our supply chain is overly complex, and we know we have significant opportunities to improve it. In 2023, we announced the closure of three manufacturing sites and consolidated two distribution centers into one. These actions set into motion our efforts to unlock value in our manufacturing and distribution network. To pursue this goal, we kicked off an extensive network analysis to guide our execution roadmap. Spearheaded by a dedicated and cross-functional team of experts, we expect this global initiative will yield significant results, including enhanced operational efficiency, improved footprint, and lower costs. We expect to begin to realize financial benefits in 2025 continuing into 2026 and beyond. Simplifying our supply chain is closely intertwined with our SKU optimization initiative. By streamlining our portfolio and utilizing a robust product lifecycle management process, we can improve and simplify our supply chain and reduce sustaining engineering costs. In 2024, we expect to execute on the first wave of the SKU optimization program addressing 60% of the SKUs in the endo and resto portfolios. We are taking a thoughtful approach to this work to drive out costs and improve working capital while maintaining revenue and ensuring a positive customer experience. We expect to begin delivering benefits from the first wave towards the end of 2024, and we also plan to evaluate further opportunities. Our ERP modernization initiative will upgrade, improve, and standardize our ERP systems. The new system will unlock organizational capacity, enhance efficiencies in our network, and pave the way for future automation opportunities company-wide. We are conducting rigorous systems testing and ensuring organizational readiness as we prepare for the phase deployment approach. We have targeted our initial rollout for mid-2024 and we are confident in our ability to execute this program with minimal disruption. Of course, as we advance these three foundational initiatives, we remain steadfast in upholding compliance and quality as key guiding principles. We plan to deliver on our promises in a manner that aligns with our values, with success gauged by our ability to generate value for our stakeholders over the long term. Now, moving to our final slide, I would like to reinforce a key few points. First, with focused execution, we delivered on our 2023 guidance. While end markets remain challenging, our strategy is clear and our execution has improved and will continue to do so. Second, we have established our foundational initiatives and strategic objectives. We are significantly better positioned to deliver on our goals through the work that's been completed or is well underway. Third, we are poised to deliver double-digit adjusted EPS growth in 2024, much of which we expect to derive from our transformational actions. Fourth, we remain confident in the path to our targeted $3 of adjusted EPS in 2026. We've established the roadmap to reach our goals and are fully focused on execution, which we believe positions as well for improved performance in 2024 and beyond. And with that, let's now open it up for questions. Operator?
spk16: As a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. All participants will be allowed one question and one follow-up. Please stand by while we compile the Q&A roster.
spk20: Our first question comes from Nathan Rich with Goldman Sachs.
spk16: Your line is open.
spk26: Hi, good morning. Thanks a lot for taking the questions. Maybe I wanted to start, Simon, with the transformation efforts that you talked about and where the company is making investments this year. I think the level of reinvestment of the restructuring savings was a bit higher than we expected. So could you maybe just go into a bit more detail of where the most significant investments are this year, and is that something that becomes part of the run rate of the expense base, or does that step down in future years? And sort of tied to that, if you could kind of help us think about where the 100 basis points of EBITDA margin expansion comes from between gross margin and operating expense, that would be helpful as well.
spk22: Thanks, Nathan. I'll start and then we can hand it over to Glenn. I think as we've said on many occasions over the past year or so, we had disinvested or de-invested in a few crucial areas in our business, namely our sales force, our commission plans, and clinical education. And over the past year, we have systematically gone after each one of those, and invested in them. I think the best benchmark, or the two best benchmarks, are the fact that we added almost 50 heads in our U.S. commercial team on implants and DSOs, and also added significant investment in clinical education. And as I mentioned in the prepared remarks, we delivered over 30% more courses in 2023 than we had before. And in fact, this year will also extend the reach of of DS World events. So they are two key areas that we've invested in, in addition to work on our network and other what we would call hygiene factors within our organization. And to give you some color on the numbers, I'll pass it over to Glenn.
spk07: Hey, Nathan. Good morning. Thanks for the question. If I look at the investments that are incremental in 2024, I would say they're going to be part of our base cost going forward. I think first one I would highlight is the BITE investments that we're making. with the opportunity that we now see with the competitive dynamics. We're going to be investing more in the commercial clinical support area, treatment planners, and infrastructure at BITE. We already started in the fourth quarter, and we see a pretty immediate return on those investments. So I mentioned on my prepared remarks, BITE is expected to grow over 20% in 2024. So we're excited about the opportunity there. We are putting more investments in. to bite and we expect to see a much faster ramp, especially as we get into later in the year. In addition, I would highlight some of the things that Simon said around our ortho business. We are investing more in Sure Smile in Japan and Brazil. These are really nice market opportunities for us, so we're putting more commercial resources on the ground there. Clinical education continues to ramp up for us, especially in the implants and endo side of our business. We're continuing to advance our next gen ERP platform, so that will have incremental investment in 2024. And then I would just say DSOs continue to be an area of focus for us. So that's where we're putting our money. This is going to be part of our infrastructure going forward, but you should expect a return on these investments, some of which coming later this year. And so we're quite excited about that. In terms of your question on the EBITDA margin expansion, I would expect about half of it coming from gross margin improvements. and half coming from SG&A leverage. Thanks.
spk26: Great. If I can maybe just ask a quick follow-up, Glenn, on the comments on Byte and the re-acceleration of growth there you know when we think about you know growth in bite or maybe just growth in clear liners in general um you know how does how does your current kind of view of the demand environment and the consumer environment kind of factor into your expectations and do you need to see any kind of improvement in the macro to kind of help fuel that acceleration in uh by revenue that you expect yeah no thanks uh we are really excited about our ortho business so um
spk07: relative to bite, we see some very good early indicators right now in terms of the revenue ramp. So that would include unique visitors that are hitting our website. That's seen a really nice sequential improvement from Q3 into Q4. Probably the most important thing is I'm seeing significant growth in impression kits in the fourth quarter, in the early part of Q1. And obviously the conversion cycle is around 60 days. So I should start to see those conversion kits convert to revenue in the latter part of February, and I'm seeing that. And so that's why I'm confident that these investments are good investments. They're going to pay off in terms of faster revenue growth and why I'm talking at least 20% revenue growth on Byte in 2024. On Sure Smile, we continue to see market share gains, continue to see differentiated outcomes with our product with fewer refinements, less revisions of our product. The Sure Smile simulator is also expected to drive some better growth in the Sure Smile business. We don't expect to see much of an improvement overall from a macro perspective, but we do see good underlying trends both in office with SureSmile and direct-to-consumer with Byte. And Simon, maybe you want to comment on some of the really good work we're doing on BytePlus.
spk22: Yeah, so Nathan, as we've said I think the last time, we rolled out a BytePlus pilot, which is where we refer customers to a dentist. We're now active. We extended the pilot. It started off with about 10 patients. about 10 locations. We're now in 25 locations. What we've heard anecdotally from those customers is that the patients that are filtering through to them are good candidates for orthodontic treatment. But as we hypothesized, this was also going to generate incremental traffic for these dental practices. So several of them have noted that these patients are getting other treatment aside from orthodontic treatment in their practices, and they would have otherwise not been a dental patient. And then just to back up onto SureSmile, again, what we've heard anecdotally is with the launch of the SureSmile simulator in the September timeframe, our customers have seen an increase in their treatment acceptance rates as well. When you can show a patient live the smile that they should expect to have, the dentists are saying that the treatment acceptance rate they're suggesting is being accepted.
spk23: Very helpful. Thank you.
spk16: Our next question comes from the line of Michael Cherney with Lee Rink Partners. Your line is open.
spk03: Good morning, and thank you so much for taking the question.
spk20: Relative to the guidance in terms of the organic Michael, we're having a hard time hearing you. Mike, can you repeat your question, please? Operator, maybe we should go to the next question. One moment for our next question.
spk16: Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.
spk24: Hi, guys. Good morning, and thanks so much for the question today. I was wondering if you could help us understand a little bit more on the equipment side, what's going on in that market. Can you talk about sort of how you're seeing maybe volumes on the equipment side and sort of differentiate that versus price and sort of how that's been trending recently. We just understand that trend as you move into 2024. Thank you.
spk22: Sure. So I'll start, Elizabeth, and then Glenn can give you some additional color. Listen, as we've done every quarter, we completed our customer survey with over 3,500 respondents in the last quarter. And I would say in the U.S., Sentiment has remained stable, if not a little more positive than in the past, and that goes across all dental categories. But the areas of continued pressure for us, and I would assume others, are Germany and Australia around investments in capital equipment. As we've noted before, in the US, anything above $20,000 or $25,000 tends to be funded or financed, rather, by our customers, while that number is much lower in other geographies. So continued pressure in Germany and Australia in particular, but more positive sentiment in general in the U.S.
spk07: Yeah, I would just add, you know, when you look at, Elizabeth, I was just going to add, in our fourth quarter, obviously our CTS business was down, but we actually saw growth in CAD-CAM in certain regions such as the US. So seeing some good growth in our scanners, mills, printers. Obviously the headwind has been really around imaging and instruments, but most notably imaging. So that's been the dynamic and why we've seen declines overall in our CTS portfolio. From a pricing point of view, I would just say the dynamics are, you know, customers are buying the lower end, the lower priced scanner. So Prime Scan Connect has actually seen some really good momentum. And so we've seen a bit of a mixed shift relative to PrimeScan AC and CEREC PrimeScan to PrimeScan Connect. So that's some of the dynamics on the pricing side.
spk24: Got it. That's really helpful. And maybe, Glenn, one more for you. If we think about sort of cap deployment, I understand what you said about sort of returning more than 75% of free cash flow to investors. Is the right way to think about the dividend sort of that should grow in line with EPS growth and then sort of the rest is, you know, mostly a share repo, but, you know, obviously you've talked about maybe tiny M&A. Is that like the right way to think about that sort of mix, particularly between dividends and the share repo going forward?
spk07: Yes, it is. So we would expect to grow dividends pretty consistent with our earnings growth, which should be double digits over the next several years. So that's the right way to think about our dividend. And then on share repurchases, we said about $600 million of share repos over the next three years. And that's pretty consistent with our current view based upon our cash flow projections. Got it.
spk12: Thanks so much.
spk16: Our next question comes from the line of John Block with Spiegel. Your line is open.
spk14: Great. Thanks, guys. Good morning. First one, Glenn, this one might be for you, but, you know, the 2024 top line guidance of around 1%, organic at the midpoint, give or take. Based on your comments, I'm getting almost 100 bps or maybe even a little bit more than 100 bps of growth from ortho alone, you know, just based on how you frame sure, small, and bite. So can you just give a, you know, a few more details on the other key products? I'm guessing CTS is the biggest drag and WellSpec would be up, but maybe you can frame some of the other key product lines as well, just as we think about the various growth rates for 2024.
spk07: Sure, John. Thanks for the question. I'll keep it to the segment level. I think that's probably appropriate. So obviously the fastest growing area we would expect in 2024 is ortho and implants. I mentioned double digit growth for SureSmile, over 20% growth in BITE. On the implant side, you know, we expect to see really strong growth continuing in China. So I would put strong growth at above 25% in 2024. And we expect a return to growth in our US implants business in the back half of the year. So ortho and implants as a segment, I would say is going to be the fastest growing area for us in 2024. EDS, our essential dental solution segment, I would say nominal growth. It's going to be really largely dependent on patient traffic. So right now we're kind of modeling it to be flattish, I would say overall in 2024. And then CTS is expected to be down year over year. Again, similar dynamics to what we saw in the fourth quarter and full year of 23, where CAD CAM should continue to grow. So scanner growth, growth in our 3D printer and prime print, and growth in our mills. But that's going to be likely offset by declines in imaging. And so right now, we're not projecting any real improvement in imaging going into 2024. But overall, CTS, we're modeling to be down year over year. And then lastly, outside of dental well-spec healthcare should continue to put up some decent growth. I would say mid single digit as a low bar for our well-spec business.
spk14: Okay, great. That was a very helpful detail. And then, you know, Simon, you mentioned the skew optimization or rationalization to start this year. I know you have past experience with big projects like that, you know, starting this year, how long will that go on for? your thoughts around risks of implementation in terms of potential revenue leakage. And then when we tie it back to the 2024 gross margin expansion, Glenn, that you alluded to earlier to Nathan's question, is the SKU optimization in 24? Is that more of we're starting this thing in 24 and it's more of a tailwind for 25? Thanks, guys.
spk22: Yeah, so thanks, John. So SKU optimization, as we've noted before, we're focusing on endo and resto. We're targeting about 60% of our SKUs in that space. We have been thoughtful about this process. We've run a number of pilots in different geographies, and that gives us a high degree of confidence that we can execute on that. We expect benefits from it to begin to materialize at the back end of 24 and then into 25 and beyond. And we also intend, as we noted in the prepared remarks, to begin to look at other aspects of our portfolio outside of endo and resto. I think we noted at the last earnings call that we've set up a team to do this work who are working in conjunction with our countries and our regional leadership teams. The company had done this historically in the past, but created little visibility. for the commercial teams on the ground and for customers. And we are not going to make that error again. So we're being very thoughtful about it. Andreas, do you have any comments to add to that?
spk10: Only thing I would add is that 24 is very much, you commented on the very broad network that we have. So we're working across our plans to stand up some standardized processes that allow us to have visibility not just in 24, but as we execute this into 25 and 26 to make sure we have some clear KPIs and forward-looking metrics. And I think the initial steps will be less visible on the commercial side, but they will also already yield benefits in terms of our inventory management as we take out non- we just simplify the portfolio by taking out non-revenue-generating SKUs and work on the back end as we get ready for
spk19: Thanks for your question, John.
spk16: Our next question comes from the line of Michael Cherney with Lee Rink Partners. Your line is open.
spk03: Okay. Let's try this again. Can you hear me?
spk04: Sounds much better. We can.
spk03: Okay. I'm learning the new technology here, so thanks. You just were talking about, you know, call it the lower end with the skew rationalization of products. I want to touch a little bit more on the higher end. As you think about what's baked into the 24 guidance, how much of it is from a quasi-vitality index, either some of the new, more high-end products and or how much conversion you can have on near-term pipeline, in particular on new instrumentation?
spk07: Yeah, I think relative to the skew rationalization optimization, there's really no benefit baked into our cost reduction efforts in 2024. That would be more of 2025. If you're talking about new product launches and the impact in our guidance for 2024, we have a couple of product launches in the back half of the year that we're obviously counting on to drive some of the revenue growth and obviously some of the margin improvement. Sam, you want to comment on those?
spk22: And then the additional piece here around DS Core, Michael, we launched that DS World two years ago now almost. We added to it with the communication canvas in May of last year and the SureSmile simulator in September. We've just launched some more capability around the user experience and user interface. And each time we have incrementally added or improved the user experience and added clinical functionality, we've seen an uptick in the number of accounts using DS Core. So that will continue to be central to any new product introductions or new software introductions in 2024 and beyond. And at the back end of last year, we also launched the new XSmart Pro, endodontic system. We've had very positive feedback from customers in Europe about it, and we do expect to bring that to the U.S. market later this year as well.
spk03: Understood and helpful. And then you talked a bit about the improvement you're expecting to see on the U.S. implant side of the business. As you think about what's baked into the multi-year guidance into 26, how much is that U.S. recovery a factor and a of that multi-year contribution?
spk22: I think what we noted at Investor Day and all our hypothesis and assumptions from Investor Day across all of our businesses and margins, et cetera, remain intact. What we said was we expect to grow above the market in aligners. We expect to grow above the market in our connected technologies, in a normal macro environment. And our intention is to get back to market growth in the implants business by 2026. So that's what's baked into our assumptions around revenue growth and our $3 VPS target in 2026. Glenn, do you have anything to add to that?
spk05: No. That's perfect. Thanks.
spk16: Our next question comes from a line of Jeff Johnson with Baird. Your line is open.
spk18: Thank you.
spk01: Good morning, guys, and congrats on at least delivering to your targets here in a tough environment. The ability to do that is not lost on some of us who have been around for a long time with this company. I wanted to maybe stick, Simon, on that 2026 topic that you were just talking about, the $3 target. You reiterated in your slide deck this morning that you feel comfortable with that Glenn, I guess when I think about the 13 cents in cost savings as you run rate – or sorry, the 13 cents in incremental EPS this year from run rating those cost savings in, even if we assume next year maybe that doubles or something because those are back-end loaded on the cost savings this year or something, and that's maybe being generous, but if we assume that – We would still need kind of your core X cost savings EPS growth to get well north of 10% and probably pushing low teens even then outside of just the cost savings over the next two years to get to the $3. So I guess, you know, help us get comfortable there, especially given where it seems as if, you know, there's going to be little organic growth this year and hard to know when that organic growth can pick up. Thank you.
spk07: Jeff, thanks for the comment. I think first and foremost, nothing has changed relative to what we communicated back in November and where we expected to land for 2023 and our view of where we expect to land by 2026. We had indicated back in November that we expected, you know, lower growth in 2024 with a tough, challenging macro environment, but we do expect to see organic growth get back to a normalized rate and growing in that four to 6% range starting in 2025. So that's a key component to us getting to the $3. On the restructuring savings, obviously we're making a number of investments this year that's offsetting the growth savings from the restructuring program. But obviously a lot of these investments we're making, we're expecting to get returns on. So overall that should help us get towards that $3 EPS target. The benefits that Tony Johnson walked through around global operations and 20 cents of EPS improvement, none of that's reflected in our numbers essentially today. So we'll have a small amount in 2024, but most of that will come in 2025 and 2026 as we go through the plant optimization, the skew rationalization, and our distribution footprint simplification. So that's all really in the 25 and 26 timeframe. We've talked a lot about the work we're doing with ERP, and right now that's an actual headwind to our costs. That will eventually become a benefit to us as we get to 2026 and can do some things around our cost structure and being more efficient once we have a common ERP platform. And then aligners profitability was also part of our bridge, and I feel even more confident now with our aligners profitability. Yes, we're making some investments early in 2024 for Byte, But we really like what we see with our aligners business right now. And so overall, nothing has changed from those aspects. Below the line, we've got the net investment hedges that we communicated $0.07 back in November. That's consistent with our guidance that we just laid out here. And that will continue in 25 and 26 to be a similar benefit for us. And then the share buyback program with the incremental cash we expect to generate will also help us get to the $3. So nothing new, Jeff. We're consistent with our messaging from November. And obviously, getting the organic growth back to a normalized rate in 4% to 6% is going to be key for us.
spk01: Yeah, that's helpful. Thanks for all that. And then, Simon, maybe a bigger picture question. You're talking about EDS being flattish this year. That's probably, I would assume, within plus or minus a few points, a couple points of market. What was pricing in EDS for 2023? What do you think it's going to be in 2024? And I think Even more importantly, you know, you're spending 4%, a little more than 4% on R&D. I would assume not a lot of that R&D is going to general consumables. But we've been hearing more and more from public-private dealers, from even some of your core manufacturing peers. that there's been a lack of innovation on the consumable side for five, six, seven years now, and that's allowing some of these private label products or maybe lower-priced branded alternatives to come in and really put pressure on the higher-end branded consumable products out there. So how important is innovation in consumables? Do you have enough in that 4% R&D number to fund any kind of spending in that area? And how should we think about EDS maybe over the multi-year period then with those trends starting to flare up maybe a little bit? Thanks.
spk22: Sure. Thanks, Jeff. So I think your first question was around pricing. I would say very, very modest pricing on the EDS side in 2023, and we expect arguably even more modest pricing in 2024 and beyond. Now, with respect to innovation, as we noted in November-December timeframe, we brought on a new chief technology officer who is driving a far more disciplined and organized process than we've had historically at Dentsply Sirona. We've already made meaningful changes to how we innovate and how we milestone and monetize new product introductions. Around innovation in EDS, I think the 4% is an okay number for now. We have to be extraordinarily diligent with how and where we spend That 4%, and that's what Kevin is doing right now. A large part of that 4% is going towards the digitalization of dentistry and DS core. We do see that as, no pun intended, as core to our future. And we have seen the improvement in adoption as we expand the clinical functionality of it. We do spend, I would say, a significant amount of money on innovation in our EDS portfolio. And I mentioned the launch of the Exmart Pro device late last year, which will launch in the U.S. later this year. So we are innovating. The feedback is positive on that. We need to be extraordinarily diligent with respect to identifying unmet clinical needs in the EDS portfolio so that the products that we launch are meaningful and are not simply Me Too products and make a difference to the patient outcomes and to clinical efficiency. Is there an opportunity for lower prices? For sure. And we have demonstrated that we are prepared to do so where appropriate. We launched PrimeScan Connect in the DI space two years ago. As Glenn noted, we've seen, I think, rapid uptake of that, particularly in 2023. And as Glenn also noted, we have both premium and value-based implants, which showed similar growth trajectories in Q4. So we are not afraid of the value segment when we know what we're getting into. Andreas? Fair enough. Thank you.
spk10: Maybe Jeff just just one comment to add just an EDS specifically it's not just about basic chemistry right, a lot of it has to do with packaging with delivery methods methods to make the practice more efficient. And one area that I would also point out in terms of focus is digital materials right so both in terms of milling as well as printing that's an investment that we lean behind and where we see good growth going forward.
spk16: And one moment for our next question. Our next question comes from Erin Wright with Morgan Stanley. Your line is open.
spk29: Great, thanks. So can you talk a little bit more about the implant competitive environment right now across the geographies and underlying demand there, but also more just from a competitor disruption standpoint, can that present any sort of opportunities for you?
spk22: Thanks. Hey, Erin, thanks for the question. Let me start with China specifically, and then maybe Andreas can take the competitive piece. We've been super happy with China performance on implants this year. We grew significantly in implants this year in both the private and public sectors. That led to growth overall in China, despite the headwinds that we had in early 23. And as Glenn noted, we expect more than 25% growth in implants again in China in 2024. So it clearly shows that our team can execute in China with respect to implants. We've, as I noted previously, our portfolio across the board, but particularly in implants, is very, very competitive. The 2000 customer survey that we did last summer told us that our portfolio is very, very competitive and has no meaningful gaps. So we're quite comfortable with it. We have demonstrated, I think, progress in the U.S. where we've slowed the deterioration throughout the year. And as Glenn noted, we expect to grow implants in the U.S. in 2024. And in response to a previous question, I noted that as part of our $3 bridge, we expect implants to be growing at market rate by 2026. That's our expectation.
spk07: Yeah, we just add a couple of things. I mean, our fourth quarter performance in implants and prosthetics was the best quarter that we had all year. We actually grew double digits. Obviously a lot of that coming from China, but we also had really good performance in Europe. And so the two together obviously drove a good result for us. We did see improvements in our U.S. implants business, but it's still declining. So We are not happy with where we're at there. We do expect to get back to growth in the second half of 2024. We've done all the things to turn that business around. So we feel good about improved performance in our U.S. implants business. But overall, did see less of a reduction in the U.S. in the fourth quarter as well. Andres, you want to make a couple comments as well?
spk10: Yeah, I'm just thinking sort of back to portfolio commercial excellence where we've made investment, but also clinical education, which is an area that we have – built upon and leaning into. So you've heard the comments previously. So I think that's one important point. The other element is the implant part also comes with the prosthetic solutions. And that's where we have a very competitive portfolio, including custom abutments and a highly digitized workflow that links into DS-Co over time. So that's an area that we also feel will be an important driver of incremental growth here over the period.
spk29: Okay, thanks. And then just a quick one on capital deployment. And you mentioned the near-term buybacks and your plans on that front. But I think you said previously that you'd be back in the market potentially doing deals in 2025. Is that still your thinking on that front? Do you see near-term pipeline opportunities from a deal perspective? Or where are your stated targets on that front? Thanks.
spk22: So I think near-term opportunities may be technology-type acquisitions. that require a little integration, Aaron. And then I do think we'll be back in the market in 25 and beyond for larger scale M&A that requires integration. But we are focused on ourselves right now in 23 and 24. Unless we see something that's a nice tuck-in, we'll probably avoid it until 25 when when we've restored the stability of our organization.
spk07: Yeah, I think the good news is our balance sheet could support M&A activity. We have low leverage. We're at 2.6 times, and that should come down here in the next couple of quarters. Have a strong liquidity position. We're expecting to generate more cash flow. So from a balance sheet perspective, we could support a really robust M&A strategy. It's organization capability in the short term as we work through some of our foundational initiatives and transformation initiatives. Thanks.
spk16: Our next question comes from the line of Brandon Vasquez with William Blair. Your line is open.
spk09: Hi. Thanks for taking the question. First, on a modeling perspective, you guys are pointing to about 100 basis points of view without margin expansion in 24. Can you just talk about maybe the cadence of that expansion through the year? I know you guys have made a lot of recent commercial investments, so maybe they need some time. Should we think of this more as, you know, the back half of the year we'll see some of this margin expansion, or should we be modeling for this to be pretty evenly split throughout the year?
spk07: Yeah, it's more back-end loaded, but we would expect even a margin expansion both in Q1 and Q2. but more of the expansion coming in Q3 and Q4. And the main reason behind that is some of these investments that we're making are more front-end loaded in the year, and the restructuring savings obviously are more benefiting the back end of the year. So we do expect even a margin expansion starting in the first quarter, but most of it will happen in the back half of the year.
spk31: Okay.
spk09: And then maybe just one quick follow-up on BITE here. I think the commentary around expectations for 20% plus growth were pretty notable. I guess the question is kind of like, what gives you confidence? You know, I know you're seeing some early pickup right now. What gives you the confidence that this can be durable given expectations for what seemed to be a still kind of difficult macro and dental? You know, this seems to be a highly kind of sensitive market to to the macro side. So how do you guys feel? Do you need an improvement in macro to hit that 20% plus in Byte? Thanks.
spk07: Yeah, I think we're counting on a stable macro environment to hit these numbers. I mentioned earlier, increase in unique visitors to our Byte website is a very positive trend for us. More importantly, impression kits going up significantly. And I won't give you the exact number, but it's well north of 50%, just to give you some context, the last couple of months and what we've seen so it's that type of growth and obviously not all that converts to revenue but we do think our conversion rates will also improve as we get further into the bite plus hybrid model that simon outlined earlier so when we look at some of the indicators including what we're seeing in the back half of february when we expect to see some of this convert to revenue we feel quite good that bite's going to put up some some meaningful growth here in 2024 i would just to say that you know we did see some headwinds on the financing front in the fourth quarter with bites. A bite only grew 6% in the fourth quarter. We had some financing constraints. A lot of it was subprime customers. We worked through some of that here in the first quarter as well. So that got a little bit better as we've gotten it to 2024. But that obviously to your point is macro dependent to a certain extent. So we're keeping a close eye on that. But with the investments that we're making now, adding more treatment planners, clinical and sales support people, I feel like we've got a really good path here to generate 20-plus percent growth invite in 2024.
spk16: Our next question comes from the line of Kevin Caliendo with UBS. Your line is open.
spk08: Thanks. Thanks for getting me in. I appreciate it. I just want to talk about the sort of expectations for the macro. You talked about it with Byte, but I want to talk about it just in the context of, you know, right now it's a difficult macro environment. The organic growth is zero to one and a half percent. Next year you expect it to get back to four to six. How much of that four to six is predicated on the macro returning to normal or how much of that is predicated on innovation and market share gains? I'm just trying, I'm really trying to understand when do you think the macro starts to improve or what's sort of predicated in your guidance for that to happen?
spk22: So let me start Kevin about, about there's another, there's another function here and it's, and it's called execution. And that, that, that's within our, that's within our control. I think, you know, over the past year, we've demonstrated that we, that we're bringing improved systems and processes to our, to our company, which includes commercial adjusting, how we, how we, pay our sales reps, and investing in clinical education, which we know is crucial for dentists and welcomed by dentists, and particularly by DSOs who want to partner with us on the provision of training. So part of that 4% to 6% is ourselves getting better and improving at execution, and we've demonstrated that we are well underway in that process. Glenn, do you want to comment on the macro piece?
spk07: Yeah, I think as we look at 2025 and getting back to 4% to 6%, we're obviously counting on a much more normalized macro environment. Share gain-wise, I would say ortho is an area we would expect to continue to gain share. Sales execution-wise, the implants business would be the area to expect improvement in 2025 as well. But the equipment side of our business has been the big headwind for us. Mm-hmm. The thought is interest rates will start to come down in the back half of this year, continue to come down in 2025. That should help the overall equipment environment. And if we see a turn in the equipment side, if you look at the rest of the numbers, we're actually performing quite well. That should get us back to more of the 4% to 6% range with the ortho gains that we're expecting in terms of market share.
spk08: That's a super helpful answer. And just On SureSmile, quickly, how much of the growth of SureSmile is tied to the new scanner? Meaning, are you seeing a correlation there that's driving growth? Is SureSmile driving the scanner growth? Is the scanner driving SureSmile growth? Is there any correlation that you see? I'm just trying to understand sort of how it's being positioned in the market.
spk22: I think there's probably a correlation between both of them, Kevin, for sure. We've also added the SureSmile simulator to DS Core, which, as I noted in response to a previous question, has driven up treatment acceptance rates in our customers. And we also have not been shy in driving what we feel is a differentiated offering compared to our competitors with respect to the fewer revisions. So I think it's a combination of many, many factors. And back to the previous question, execution and commission plans is another factor. Glenn, you have something to add?
spk07: I think the only thing I would add, Kevin, you probably remember in 2023, we mentioned that we equipped all of our ortho reps with scanners. And so we have seen some really good momentum post that decision. So that was an investment we made. We're seeing some payoffs. And it's hard to say how much of the growth scanners are driving in terms of the actual aligners versus the other way around. But I think on the whole, the decision to invest in scanners, get them in the hands of our reps, is paying off and we're seeing strong double-digit growth insurance model.
spk17: Sounds good. Thanks, guys, so much.
spk16: Our next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.
spk15: Hey, good morning. Thanks for squeezing us in here. Wanted to start maybe with a follow-up on Byte. It definitely sound more bullish than I think where we were maybe in the second half of last year. Maybe hard to break down, but how much of the 20% growth would you characterize as maybe share gains from that other DTC player exiting the market versus just a healthier view of the macro? And I guess maybe versus benefits you're making yourself. Just trying to understand maybe what's exogenous here versus what's you know, what's attributable to your own actions in that 20% growth outlook as we really try to think about what's sustainable beyond 2024?
spk07: I think the majority of the growth is coming from the competitive dynamics that have taken place over the last couple months. So, certainly more than half of that growth.
spk15: Okay. I guess, Glenn, you're still making a lot of investments in this category, though. So, I mean, I guess some As we think about the sustainability of growth, I know there were some questions earlier on macro dependency, but would you agree this can still be a growth leg for you, not necessarily 20%, but still well above company-wide as we look beyond 2024? And then a separate follow-up, you sound a little more confident, I thought, about or bullish on 3D printing. You know, how much more progress has to happen, do you think, on the resin side before uptake and prime print really inflects higher?
spk07: Yeah, I think we would expect Byte to continue to have healthy growth going forward beyond 2024. So I'm not going to say it's going to be 20% plus, but certainly it's going to be a faster growing part of our portfolio even beyond 2024. Maybe you can comment, Andreas, on the 3D printer. Sure.
spk22: Before he does so, just staying on Byte for a moment, Jason. We demonstrated last year that we're able to drive net income performance on the Byte platform. That is an inherent assumption of ours going forward as well, despite the investments we're making to tap into the opportunity that has presented itself. We're not looking to get all of the opportunity. that's presenting itself, we're looking to get the profitable opportunity that's presenting itself.
spk10: In terms of the resins and the printing equipment, what gives us confidence there, I think, is the shift of the market to looking for a a safe and secure and a connected solution that is applicable to their office, right? So we're moving from sort of this very early adopter technology segment in printing to a more sort of workflow-focused customer segment, and that's where Prime Print is positioned. And that's sort of where we're looking to grow our solution here and also integrating our materials and our workflows for dentures and... and sort of other splints, printed impressions, drill guides, the usual sort of applications that you would see in an office with PrimePrint.
spk20: All right, thank you so much. Thank you.
spk16: Our last question comes from the line of Michael Petusky with Barrington Research. Your line is open.
spk11: Hey, good morning. I may have possibly missed this, but I don't think it was mentioned. Did you guys talk about any impact quantification of how Shine's issues may have impacted your fourth quarter? Is there any talk about that? Or if not, can you talk about that?
spk07: Yeah, no, we haven't mentioned anything around that impact. I would just say we built some conservatism into our guidance back in Q4. We really didn't have any significant impact from that incident So obviously there was some impact, but you have also some dynamics of where we saw improvements in other orders coming from dealers. So for our business, minimal impact, and that's all we're going to say about that. Thanks.
spk11: And then just a quick follow-up on Byte, which is popular today. I hear the great data point about the impression kit ramp and also some of the orders starting to follow through. I'm assuming, though, when you say, hey, the conversion rate, we expect that to improve. You haven't seen evidence yet of that. Is that fair?
spk07: That's fair. Our conversion rates are pretty consistent from what we've seen in the last couple of quarters, so that's correct. I do believe, though, if BytePlus is successful, and that's our hybrid model, that could potentially help our conversion rates tick up, but we have not seen it yet.
spk13: All right, very good. Thanks, guys. Appreciate it. Thank you.
spk16: And this concludes today's question and answer session. I would now like to turn the conference back to Simon Campion for closing remarks.
spk22: Thank you. Thank you, operator. So thanks to you all for joining today's call. Before we close, I would like to leave you all with some key points. Firstly, we are well positioned in attractive industries. We have the largest end-to-end dental portfolio that is more than 45% digitally connected. We do have leading brands and strategic objectives that focus on high growth areas such as aligners, implants, our digitalization strategy enabled by DS Core, and continence care. Secondly, our transformation is taking place. And while there is more work ahead, we do have a clear and actionable path to accelerate profitable growth. We expect that 2024 will be an inflection year for improved profitability and adjusted EPS growth. Thirdly, we are building a durable, sustainable business that's better positioned to navigate external challenges and capitalize on new market opportunities as we move forward. We remain with our conviction that we are on the right path to deliver meaningful value over the long term. As you may have already seen earlier today, we also announced Eric Brand's intent to retire from the Board of Directors following our May annual meeting. Eric has served as a director of the company for nearly 20 years and as chairman for six years. I would like to express a sincere thanks to Eric for his many years of services to Dentsply Sirona and wish him all the best in his future endeavors. And finally, on behalf of our management team, I would like to extend our gratitude to all our employees for their tenacious commitment to the business and the ongoing transformation process. And we especially want to express our appreciation to those employees who have been impacted by our restructuring program and wish them the very best in their future endeavors. Thank you.
spk16: This concludes today's conference call. Thank you for participating.
spk20: You may now disconnect. you Thank you. We'll be right back.
spk12: Thank you.
spk16: Good day and thank you for standing by. Welcome to the Dentsupply Sirona 4th Quarter 2023 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrea Daly, Vice President of Investor Relations. Please go ahead.
spk25: Thank you, Operator, and good morning, everyone. Welcome to the DEMS by Sirona fourth quarter 2023 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, Glenn Coleman, Chief Financial Officer, and Andreas Frank, Chief Business Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investors section of our website at www.dentsbyserona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may 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 recently filed Form 10-K and any updating information in subsequent SEC filings lists some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business's financial performance. enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to the prior year quarter unless otherwise noted. A webcast replay of today's call will be available on the investor section of the company's website following the call. And with that, I will now turn the call over to Simon.
spk22: Thank you, Andrea. We appreciate you all joining us this morning for our Q4 2023 earnings call. Today I'll begin by providing a summary of our recent performance. Then Glen will cover Q4 and full year 23 financial results and share our 2024 outlook. And I will finish by providing a strategic operating update. Now starting on slide three, We achieved over 2% organic sales growth in 2023, above our projection, driven by growth in three of our four segments. The ortho business saw double-digit growth in both Byte and SureSmile. The EDS segments posted growth in all regions and product categories, and in total delivered mid-single-digit growth, while WellSpect Healthcare generated high single-digit growth. Through the fourth quarter, the macro environment remained challenging. The CTS segment declined slightly more than expected, mainly due to equipment and instruments with softness in imaging, which we anticipate will continue in 2024. This was partially offset by an increase in demand for CAD-CAM, and particularly for intraoral scanners, which was another bright spot for us. In January, we conducted our latest customer survey with over 3,500 respondents from 12 key geographies. Sentiment in the U.S. improved slightly about the future of the industry and their practices. German and Australian customers continued to express a negative outlook, and this is largely unchanged from the last quarter. The survey also suggested that patient demand in China continues at reduced levels, but with no sequential deterioration. EBITDA margin for 2023 came in at 17.4%, and adjusted EPS was $1.83, and both in line with our guidance. As we stated at the beginning of the year, we consider 2023 a transition year for Dents by Serona. We promptly and decisively executed several critical transformation initiatives to achieve the necessary cost savings, enabling strategic reinvestment for hygiene and growth. We made significant progress on these initiatives, which have strengthened the foundation of the business and set us on a path to improved future performance which we highlighted for you at our Investor Day in November. As we have said, we believe 2024 will be an inflection year for us, delivering double-digit adjusted EPS growth, largely due to the benefits of our transformation initiatives. We remain laser focused on executing our strategy while simultaneously strengthening our foundation, developing new capabilities, and implementing greater discipline and rigor across our business. Moving to slide four, I would like to share some selected business highlights. In 2023, we continued to bring innovation to the market. We enhanced our DS core offering, expanding the platform, and enabling new clinical functionality. On the last earnings call, I shared that we had already exceeded our DS core target for 2023, and as an update, we ended the year with over 14,000 unique accounts. We believe that DS Core will play an ever-expanding role in shaping dentistry as the industry undergoes a digital evolution that's connecting technology and clinical workflows. We're also focusing on digital print materials, and we recently launched Lucitone for PrimePrint and expanded our splints offering. We believe we are well positioned to advance digital print materials and continue to see opportunities to accelerate the adoption of 3D printing in dental practices. as a standalone office capability or as a complement to in-office milling. As previously communicated, we reinvigorated our focus on clinical education offerings. We know that digital dentistry requires hands-on, in-person training to facilitate practice integration and unlock the potential of digital tools, and we are committed to providing this for our customers. In 2023, we were proud to offer over 9,200 training and education courses globally through live, online, and hybrid formats, which reflects about a 30% increase compared to prior year. We also expanded our reach with digital learning platforms through a partnership with DTI that started in the fourth quarter. Live events play an important role in enriching our clinical education platform. Earlier this month, I had the opportunity to attend our second DS World event in Dubai. This event featured courses on many dental disciplines, with over 1,000 participants in attendance. And this is the first of several DS World events we have planned this year. In the fourth quarter, we also conducted several implants-focused events in the US and Europe. Building on the success of these events, we look forward to hosting our Implant Solutions World Summit in Miami in the second quarter. We continue to progress our sustainability strategy. In 2023, we achieved a new record for our injury and illness prevention rate. The safety of our employees is of the utmost importance, and we are very proud of this accomplishment. Our well-specced healthcare business also continues to lead in this area and recently won an award for sustainable MedTech innovation for the use of renewable plastic in Lofric L, a female urinary catheter. We were also named to Sustainalytics 2024 ESG top-rated companies list earlier this month. Wrapping up the highlights, we recently announced an expansion of our collaboration with ADEC, introducing a new integrated product offering that will bring together PrimeScan Connect and certain ADEC delivery systems. This builds upon our existing collaboration with ADEC that integrated Cavitron into their platform. The new offering creates a fresh solution to meet customer needs, empowering dental professionals to streamline practice workflows and elevate the patient experience. And with that, I will hand the call over to Glenn for the financial update.
spk07: Thanks, Simon. Good morning and thank you all for joining us. Today I'll cover several topics, including our fourth quarter and full year 2023 results, as well as our outlook for 2024. Let's begin on slide five. Our fourth quarter revenue was $1.01 billion, representing reported sales growth of 2.9% and organic sales growth of 1.9%. Foreign currency positively impacted sales by approximately $10 million or 100 basis points compared to the prior year quarter. On a constant currency basis, the key highlights in the quarter included strong sales performance in China, which grew over 35%, double-digit growth in both well-specced and implants and prosthetics, and high single-digit growth in our global aligners business. Despite higher sales, EBITDA margins declined 40 basis points in the quarter, mainly due to year-over-year decline in gross margins, which contracted 100 basis points. This was largely driven by unfavorable country mix due to lower margin implant sales in China and unfavorable product mix within our endo and CAD-CAM portfolios. Adjusted EPS in the quarter was 44 cents, down 4% from the prior year, largely due to lower gross margins and a higher tax rate. In the fourth quarter, we generated $160 million of operating cash flow, up 13% year-over-year, driven by improved inventory management and the timing of accounts payable compared to the prior year. Free cash flow conversion was 128% compared to 110% in the prior year. In the fourth quarter, we repurchased $150 million of stock at an average price of $30.73 and paid $30 million in dividends. For the full year, we returned $416 million to shareholders. Let's now turn to fourth quarter segment performance on slide six. Starting with the essential dental solution segment, which includes endo, resto, and preventive products, organic sales grew 3.4 percent, driven by growth in all three regions and in each product category. EDS benefited from stable patient traffic and price increases implemented earlier in the year. Shifting to the orthodontic and implant solution segment, organic sales grew 10.6%. Aligners grew high single digits. Specifically, SureSmile grew 13% and continues to benefit from market share gains, new product offerings, and differentiated outcomes. Additionally, we believe the recent launch of our SureSmile simulator within DS Core will benefit future sales. Our direct-to-consumer aligner brand, Byte, grew 6% despite a constrained financing environment. With the recent uptick in new customer interest, we are ramping our investment in treatment planning, clinical support, and sales, which supports our anticipated greater than 20% growth in Byte this year. We also expect SureSpinal to grow double digits in 2024. Moving to implants and prosthetics, double-digit growth was a clear bright spot in the quarter driven by VBP and market share gains in China and higher demand in Europe. Globally, premium and value implants saw similar growth rates. Our U.S. implants business was down slightly in the quarter, but showed less of a decline than previous quarters, and we anticipate a return to growth in 2024. Wrapping up our dental performance, CTS, our connected technology solution segment, saw organic sales decline 8.3% versus the prior year quarter. Our global CAD-CAM business grew low single digits, driven by increased demand in the US, while the equipment and instruments business declined double digits in the quarter. Moving to well-spec healthcare, Organic sales grew 16.9%, driven by growth in Europe and the U.S. As a reminder, WellSpect had an easier comp as the prior year quarter was impacted by a one-time pricing matter in Italy. In addition, new product launches contributed to better-than-expected year-over-year growth. Now let's turn to Slide 7 to discuss fourth quarter financial performance by region. U.S. sales declined 1.2% due to lower sales of equipment, instruments, and implants, partially offset by strong growth in aligners and CAD CAM equipment. U.S. CAD CAM distributor inventory levels decreased sequentially in the quarter by approximately $4 million and ended the year essentially flat compared to the end of 2022. Relative to historical averages, distributor inventory levels remain low. Turning to Europe, the region returned to growth in the quarter with contributions from WellSPECT, EDS, and OIS. SureSmile grew over 25% with notable growth in Spain, France, and Germany. We also saw an increase in implants demand driven by growth in MIS and higher conversions from our legacy product Zive to our new DS OmniTaper implant. Our CTS segment continues to see lower volumes due to recessionary impacts, particularly in Germany, which is our largest market in the region. Excluding Germany, Europe organic sales grew 4.1% compared to the prior year. Rest of world organic sales grew 5.4% in the quarter, led by China, which delivered significant growth in implants. In 2023, we saw a more than 40% increase in our China implants customer base. The public and private sector both continue to experience significant market growth. Sales in Japan declined during the quarter as the prior year quarter benefited from government rebate programs on certain equipment. Wrapping up Q4 regional performance, Latin America grew high single digits in the quarter, led by solid demand and sales execution in Brazil and Mexico. We saw an improvement in intraoral scanner volume, driven by the launch of PrimeScan Connect, and sales of refurbished Omnicam units in the region. In the first half of 2024, we plan to launch SureSmile, DS-Core, and PrimePrint in Brazil and other countries within the region. Now let's turn to slide 8 to briefly cover our full year 2023 performance. Sales for the full year were $3.97 billion, representing reported sales growth of 1.1% and organic sales growth of 2.2%. Foreign currency translation negatively impacted sales by 110 basis points due to a stronger dollar versus most major currencies. Key highlights for the year included double-digit growth in aligners and high single-digit growth in China due primarily to significantly higher volume in implants which more than offset the pricing declines associated with VBP. The largest challenge we saw in 2023 was lower volumes in equipment and instruments, which we attribute to recessionary concerns and higher interest rates in the U.S., Germany, and other developed markets, as well as competitive pressure, and we see this trend continuing into 2024. EBITDA margins contracted 210 basis points to 17.4%, due to cost inflation and higher investments in the commercial organization, clinical education, and infrastructure, partially offset by restructuring benefits. Even the margins were in line with our guidance, and adjusted EPS of $1.83 was at the midpoint of our range. Operating cash flow was $377 million, down 27% year over year, driven by higher investments, restructuring cash outlays, and unfavorable timing of accounts receivable and accounts payable. Free cash flow conversion was 58% compared to 81% in 2022. As we mentioned during our recent investor day in November, our long-term goal is to achieve 100% free cash flow conversion on a consistent basis once we move past the cash outlays associated with our transformation initiatives. The company continues to maintain a strong balance sheet and finished the year with $334 million of cash and cash equivalents on hand, with a net debt to EBITDA ratio of approximately 2.6 times, which is slightly above our long-term targeted rate of 2.5 times due to the fourth quarter $150 million share buyback. Today, we also announced a 14% increase to our dividend. This marks our fourth consecutive year of double-digit increases to the dividend, and demonstrates our confidence in our long-term plan. With that, let's move to slide 9 to discuss our expectations for 2024. For 2024, we expect organic sales to be flat to up 1.5%, which represents a net sales range of $3.96 billion to $4.02 billion. We expect FX to be a slight headwind to reported sales based on current rates, and anticipate stronger organic sales growth in the second half of the year as we remain cautious on the macroeconomic backdrop for the next several quarters, particularly for equipment. We expect our EBITDA margin to be greater than 18% in 2024, an expansion of approximately 100 basis points year over year. We also expect margin improvement as we progress through the year based on the timing of investments and restructuring savings. We project an increase in our full-year tax rate due to geographic income mix and expect the Q1 tax rate to be higher than the full year as we finalize our 2024 tax planning initiatives. We expect adjusted earnings per share to be in the range of $2 to $2.10. For Q1, we expect organic sales to be roughly flat to the prior year, with slightly lower reported sales due to an anticipated FX headwind of approximately $10 million. On a sequential basis, gross margin is projected to improve in Q1. With this, we expect EPS will be up mid-single digits year over year. In Q1, we expect to see growth in OIS and well-spec healthcare, all set by declines in EDS due to a tougher comp and CTS based on current trends. Let's turn to slide 10 to discuss the puts and takes in our 2024 adjusted EPS outlook. Organic growth at the midpoint is expected to contribute 4 cents to earnings. Our projected cost savings from the restructuring plan should reach the run rate of $200 million in 2024. Net of investments, we expect this will contribute approximately 13 cents of EPS. Key investments for 2024 include ERP expenses, bite and sure-smile expansion. We expect net investment hedges will be a $0.07 tailwind to EPS, consistent with our previous comments at our November Investor Day. We are forecasting that other items, namely cost inflation, tax, and share count, will net to a $0.02 headwind to EPS. These drivers combined to ingested EPS outlook of $2.05 at the midpoint of the range of double digits versus the prior year. With that, I will now turn the call back over to Simon.
spk22: Thank you, Glenn. Moving on to our strategic update starting on slide 11. Our strategy is clear and remains unchanged. Digitalized dentistry deliver customer-centric innovation in products and services for oral health and continence care. serve our partners effectively, and accomplish these goals through a dedicated and engaged team with compliance and quality always at the core. We continue to actively implement and advance all five of our strategies. With strengthening execution discipline, continued process improvement, and the strategic investments we are making in the company, we believe we can advance the performance of this company and create increased value for our stakeholders and employees. Now moving to slide 12, let me discuss our foundational initiatives. During 2023, we established many of the fundamental elements necessary to purposely carry out our plans for 2024 and beyond to transform this company across product lines, regions, and operational areas. With the restructuring program largely complete and on track to deliver $200 million in savings this year, We are shifting focus to the foundational initiatives we have prioritized for 2024. We spoke about these at our investor day in November, and we continue to make progress on each of them. Let's start with supply chain transformation. Our supply chain is overly complex, and we know we have significant opportunities to improve it. In 2023, we announced the closure of three manufacturing sites and consolidated two distribution centers into one. These actions set into motion our efforts to unlock value in our manufacturing and distribution network. To pursue this goal, we kicked off an extensive network analysis to guide our execution roadmap. Spearheaded by a dedicated and cross-functional team of experts, we expect this global initiative will yield significant results, including enhanced operational efficiency, improved footprint, and lower costs. We expect to begin to realize financial benefits in 2025 continuing into 2026 and beyond. Simplifying our supply chain is closely intertwined with our SKU optimization initiative. By streamlining our portfolio and utilizing a robust product lifecycle management process, we can improve and simplify our supply chain and reduce sustaining engineering costs. In 2024, we expect to execute on the first wave of the SKU optimization program addressing 60% of the SKUs in the endo and resto portfolios. We are taking a thoughtful approach to this work to drive out costs and improve working capital while maintaining revenue and ensuring a positive customer experience. We expect to begin delivering benefits from the first wave towards the end of 2024, and we also plan to evaluate further opportunities. Our ERP modernization initiative will upgrade, improve, and standardize our ERP systems. The new system will unlock organizational capacity, enhance efficiencies in our network, and pave the way for future automation opportunities company-wide. We are conducting rigorous systems testing and ensuring organizational readiness as we prepare for the phase deployment approach. We have targeted our initial rollout for mid-2024 and we are confident in our ability to execute this program with minimal disruption. Of course, as we advance these three foundational initiatives, we remain steadfast in upholding compliance and quality as key guiding principles. We plan to deliver on our promises in a manner that aligns with our values, with success gauged by our ability to generate value for our stakeholders over the long term. Now, moving to our final slide, I would like to reinforce a key few points. First, with focused execution, we delivered on our 2023 guidance. While end markets remain challenging, our strategy is clear and our execution has improved and will continue to do so. Second, we have established our foundational initiatives and strategic objectives. We are significantly better positioned to deliver on our goals through the work that's been completed or is well underway. Third, we are poised to deliver double-digit adjusted EPS growth in 2024, much of which we expect to derive from our transformational actions. Fourth, we remain confident in the path to our targeted $3 of adjusted EPS in 2026. We've established the roadmap to reach our goals and are fully focused on execution, which we believe positions as well for improved performance in 2024 and beyond. And with that, let's now open it up for questions. Operator?
spk16: As a reminder, to ask a question, please press star 1-1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. All participants will be allowed one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Nathan Rich with Goldman Sachs. Your line is open.
spk26: Hi, good morning. Thanks a lot for taking the questions. Maybe I wanted to start, Simon, with the transformation efforts that you talked about and where the company is making investments this year. I think the level of reinvestment of the restructuring savings was a bit higher than we expected. So could you maybe just go into a bit more detail of where the most significant investments are this year, and is that something that becomes part of the run rate of the expense base, or does that step down in future years? And sort of tied to that, if you could kind of help us think about where the 100 basis points of EBITDA margin expansion comes from between gross margin and operating expense, that would be helpful as well.
spk22: Sure. Thanks, Nathan. I'll start, and then we can hand it over to Glenn. I think as we've said on many occasions over the past year or so, we had disinvested or de-invested in a few crucial areas in our business, namely our sales force, our commission plans, and clinical education. And over the past year, we have systematically gone after each one of those and invested in them. I think the best benchmark or the two best benchmarks are the fact that we added almost 50 heads in our U.S. commercial team on implants and DSOs and also added significant investment in clinical education. And as I mentioned in the prepared remarks, we delivered over 30% more courses in 2023 than we had before. And, in fact, this year will also extend the reach of DS World events. So they are two key areas that we've invested in, in addition to work on our network and other what we would call hygiene factors within our organization. And to give you some color on the numbers, I'll pass it over to Glenn.
spk07: Nathan, good morning. Thanks for the question. If I look at the investments that are incremental in 2024, I would say they're going to be part of our base cost going forward. I think first one I would highlight is the BITE investments that we're making with the opportunity that we now see with the competitive dynamics. We're going to be investing more in the commercial clinical support area, treatment planners, and infrastructure at BITE. We already started in the fourth quarter. and we see a pretty immediate return on those investments. So I mentioned on my prepared remarks, Byte is expected to grow over 20% in 2024. So we're excited about the opportunity there. We are putting more investments in to Byte, and we expect to see a much faster ramp, especially as we get into later in the year. In addition, I would highlight some of the things that Simon said around our ortho business. We are investing more in SureSmile in Japan and Brazil. These are really nice market opportunities for us, so we're putting more commercial resources on the ground there. Clinical education continues to ramp up for us, especially in the implants and endo side of our business. We're continuing to advance our next-gen ERP platform, so that will have incremental investment in 2024. And then I would just say DSOs continue to be an area of focus for us. So that's where we're putting our money. This is going to be part of our infrastructure going forward, but you should expect a return on these investments some of which coming later this year. And so we're quite excited about that. In terms of your question on the EBITDA margin expansion, I would expect about half of it coming from gross margin improvement and half coming from SG&A leverage. Thanks.
spk26: Great. If I can maybe just ask a quick follow-up, Glenn, on the comments on BITE and the re-acceleration of growth there you know when we think about you know growth in bite or maybe just growth in clear liners in general um you know how does how does your current kind of view of the demand environment and the consumer environment kind of factor into your expectations and do you need to see any kind of improvement in the macro to kind of help fuel that acceleration in uh by revenue that you expect yeah no thanks uh we are really excited about our ortho business so um
spk07: relative to bite we see some very good early indicators right now in terms of the revenue ramp so that would include unique visitors that are hitting our website that's seen a really nice sequential improvement from q3 into q4 probably the most important thing is i'm seeing significant growth in impression kits in the fourth quarter in the early part of q1 and obviously the conversion cycle is around 60 days so i should start to see those conversion kits convert to revenue in the latter part of February, and I'm seeing that. And so that's why I'm confident that these investments are good investments. They're going to pay off in terms of faster revenue growth and why I'm talking at least 20% revenue growth on Byte in 2024. On Sure Smile, we continue to see market share gains, continue to see differentiated outcomes with our product with fewer refinements, less revisions of our product. The Sure Smile simulator is also expected to drive some better growth in the Sure Smile business. We don't expect to see much of an improvement overall from a macro perspective, but we do see good underlying trends both in office with SureSmile and direct-to-consumer with Byte. And Simon, maybe you want to comment on some of the really good work we're doing on BytePlus.
spk22: Yeah, so Nathan, as we've said I think the last time, we rolled out a BytePlus pilot, which is where we refer customers to a dentist. We're now active. We've extended the pilot. It started off with about 10 about 10 locations. We're now in 25 locations. What we've heard anecdotally from those customers is that the patients that are filtering through to them are good candidates for orthodontic treatment. But as we hypothesized, this was also going to generate incremental traffic for these dental practices. So several of them have noted that these patients are getting other treatment aside from orthodontic treatment in their practices, and they would have otherwise not been a dental patient. And then just to back up onto SureSmile, again, what we've heard anecdotally is with the launch of the SureSmile simulator in the September timeframe, our customers have seen an increase in their treatment acceptance rates as well. When you can show a patient live the smile that they should expect to have, The dentists are saying that the treatment acceptance rate they're suggesting is being accepted.
spk23: Very helpful. Thank you.
spk16: Our next question comes from the line of Michael Cherney with Lee Rink Partners. Your line is open.
spk07: Michael, we're having a hard time hearing you.
spk25: Mike, can you repeat your question, please?
spk07: Operator, maybe we should go to the next question.
spk16: One moment for our next question. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.
spk24: Hi, guys. Good morning, and thanks so much for the question today. I was wondering if you could help us understand a little bit more on the equipment side, what's going on in that market. Can you talk about sort of how you're seeing maybe volumes on the equipment side and sort of differentiate that versus price and sort of how that's been trending recently. We just understand that trend as you move into 2024. Thank you.
spk22: Sure. So I'll start, Elizabeth, and then Glenn can give you some additional color. Listen, as we've done every quarter, we completed our customer survey with over 3,500 respondents in the last quarter. And I would say in the U.S., sentiment has remained stable, if not a little more positive than in the past, and that goes across all dental categories. But the areas of continued pressure for us, and I would assume others, are Germany and Australia around investments in capital equipment. As we've noted before, in the US, anything above $20,000 or $25,000 tends to be funded or financed, rather, by our customers, while that number is much lower in other geographies. So continued pressure in Germany and Australia in particular, but more positive sentiment in general in the U.S.
spk07: Yeah, I would just add, you know, when you look at – Elizabeth, I was just going to add, in our fourth quarter, obviously our CTS business was down, but we actually saw growth in CAD-CAM, in certain regions such as the US. So seeing some good growth in our scanners, mills, printers. Obviously the headwind has been really around imaging and instruments, but most notably imaging. So that's been the dynamic and why we've seen declines overall in our CTS portfolio. From a pricing point of view, I would just say the dynamics are, you know, customers are buying the lower end, the lower priced scanner. So Prime Scan Connect has actually seen some really good momentum. And so we've seen a bit of a mixed shift relative to PrimeScan AC and CEREC PrimeScan to PrimeScan Connect. So that's some of the dynamics on the pricing side.
spk24: Got it. That's really helpful. And maybe, Glenn, one more for you. If we think about sort of cap deployment, I understand what you said about sort of returning more than 75% of free cash flow to investors. Is the right way to think about the dividend sort of that should grow in line with EPS growth and then sort of the rest is, you know, mostly a share repo, but, you know, obviously you've talked about maybe tiny M&A. Is that like the right way to think about that sort of mix, particularly between dividends and the share repo going forward?
spk07: Yes, it is. So we would expect to grow dividends pretty consistent with our earnings growth, which should be double digits over the next several years. So that's the right way to think about our dividend. And then on share repurchases, we said about $600 million of share repos over the next three years. And that's pretty consistent with our current view based upon our cash flow projections. Got it.
spk24: Thanks so much.
spk16: Our next question comes from the line of John Block with Sphefel. Your line is open.
spk14: Great. Thanks, guys. Good morning. First one, Glenn, this one might be for you, but, you know, the 2024 top line guidance of around 1% organic at the midpoint, give or take. Based on your comments, I'm getting almost 100 bps or maybe even a little bit more than 100 bps of growth from ortho alone, you know, just based on how you frame sure, small, and bite. So can you just give a few more details on the other key products? I'm guessing CTS is the biggest drag and WellSpec would be up, but maybe you can frame some of the other key product lines as well, just as we think about the various growth rates for 2024.
spk07: Sure, John. Thanks for the question. I'll keep it to the segment level. I think that's probably appropriate. So obviously the fastest growing area we would expect in 2024 is ortho and implants. I mentioned double digit growth for SureSmile, over 20% growth in BITE. On the implant side, you know, we expect to see really strong growth continuing in China. So I would put strong growth at above 25% in 2024. And we expect a return to growth in our US implants business in the back half of the year. So ortho and implants as a segment, I would say is going to be the fastest growing area for us in 2024. EDS or essential dental solution segment, I would say nominal growth. It's going to be really largely dependent on patient traffic. So right now we're kind of modeling it to be flattish, I would say overall in 2024. And then CTS is expected to be down year over year. Again, similar dynamics to what we saw in the fourth quarter and full year of 23, where CAD CAM should continue to grow. So scanner growth, growth in our 3D printer and prime print, and growth in our mills. But that's going to be likely offset by declines in imaging. And so right now, we're not projecting any real improvement in imaging going into 2024. But overall, CTS we're modeling to be down year over year. And then lastly, outside of dental, WellSpec Healthcare should continue to put up some decent growth, I would say mid single digit as a low bar for our WellSpec business.
spk14: Okay, great. That was a very helpful detail. And then, you know, Simon, you mentioned the skew optimization or rationalization to start this year. I know you have past experience with big projects like that. You know, starting this year, how long will that go on for? your thoughts around risks of implementation in terms of potential revenue leakage. And then when we tie it back to the 2024 gross margin expansion, Glenn, that you alluded to earlier to Nathan's question, is the SKU optimization in 24? Is that more of we're starting this thing in 24 and it's more of a tailwind for 25? Thanks, guys.
spk22: Yeah, so thanks, John. So SKU optimization, as we've noted before, we're focusing on endo and resto. We're targeting about 60% of our SKUs in that space. We have been thoughtful about this process. We've run a number of pilots in different geographies, and that gives us a high degree of confidence that we can execute on that. We expect benefits from it to begin to materialize at the back end of 24 and then into 25 and beyond. And we also intend, as we noted in the prepared remarks, to begin to look at other aspects of our portfolio outside of Endo and Resto. I think we noted at the last earnings call that we've set up a team to do this work who are working in conjunction with our countries and our regional leadership teams. The company had done this historically in the past, but created little visibility. for the commercial teams on the ground and for customers. And we are not going to make that error again. So we're being very thoughtful about it. Andreas, do you have any comments to add to that?
spk10: Only thing I would add is that 24 is very much, you commented on the very broad network that we have. So we're working across our plans to stand up some standardized processes that allow us to have visibility not just in 24, but as we execute this into 25 and 26 to make sure we have some clear KPIs and forward-looking metrics. And I think the initial steps will be less visible on the commercial side, but they will also already yield benefits in terms of our inventory management as we take out non- we just simplify the portfolio by taking out non-revenue-generating SKUs and work on the back end as we get ready for 25 and 26. Thanks for your question, John.
spk16: Our next question comes from the line of Michael Cherney with Lee Rink Partners. Your line is open.
spk03: Okay, let's try this again. Can you hear me?
spk04: Sounds much better.
spk03: Okay, I'm learning the new technology here, so thanks. You just were talking about, you know, call it the lower end with the skew rationalization of products. I want to touch a little bit more on the higher end. As you think about what's baked into the 24 guidance, how much of it is from a quasi-vitality index, either some of the new, more high-end products, and or how much conversion you can have on near-term pipeline, in particular on new instrumentation?
spk07: Yeah, I think relative to the skew rationalization optimization, there's really no benefit baked into our cost reduction efforts in 2024. That would be more of 2025. If you're talking about new product launches and the impact in our guidance for 2024, we have a couple of product launches in the back half of the year that we're obviously counting on to drive some of the revenue growth and obviously some of the margin improvements. Simon, you want to comment on those?
spk22: And then the additional piece here around DS Core, Michael, we launched that DS World two years ago now almost. We added to it with the Communication Canvas in May of last year and the Sure Smile Simulator in September. We've just launched some more capability around the user experience and user interface. And each time we have incrementally added or improved the user experience and added clinical functionality, we've seen an uptick in the number of accounts using DS Core. So that will continue to be central to any new product introductions or new software introductions in 2024 and beyond. And at the back end of last year, we also launched the new X-Mart Pro endodontic system. We've had very positive feedback from customers in Europe about it, and we do expect to bring that to the U.S. market later this year as well.
spk03: Understood and helpful. And then you talked a bit about the improvement you're expecting to see on the U.S. implant side of the business. As you think about what's baked into the multi-year guidance into 2026, How much is that U.S. recovery a factor and a driver of the organic growth component of that multi-year contribution?
spk22: I think what we noted at Investor Day and all our hypothesis and assumptions from Investor Day across all of our businesses and margins, et cetera, remain intact. What we said was we expect to go above the market in aligners, We expect to grow above the market in our connected technologies in a normal macro environment. And our intention is to get back to market growth in the implants business by 2026. So that's what's baked into our assumptions around revenue growth and our $3 VPS target in 2026. Glenn, do you have anything to add to that?
spk05: No. That's perfect. Thanks. Thanks.
spk16: Our next question comes from the line of Jeff Johnson with Baird. Your line is open.
spk18: Thank you. Good morning, guys, and congrats on at least delivering to your targets here in a tough environment.
spk01: The ability to do that is not lost on some of us who have been around for a long time with this company. I wanted to maybe stick, Simon, on that 2026 topic that you were just talking about, the $3 policy. target. You reiterated in your slide deck this morning that you feel comfortable with that. You know, Glenn, I guess when I think about the 13 cents in cost savings as you run rate, or sorry, the 13 cents in incremental EPS this year from run rating those cost savings in, even if we assume next year, you know, maybe that doubles or something because those are back-end loaded on the cost savings this year or something, and that's maybe being generous, but if we assume that We would still need kind of your core X cost savings EPS growth to get well north of 10% and probably pushing low teens even then outside of just the cost savings over the next two years to get to the $3. So I guess, you know, help us get comfortable there, especially given where it seems as if, you know, there's going to be little organic growth this year and hard to know when that organic growth can pick up. Thank you.
spk07: Jeff, thanks for the comment. I think first and foremost, nothing has changed relative to what we communicated back in November and where we expected to land for 2023 and our view of where we expect to land by 2026. We had indicated back in November that we expected, you know, lower growth in 2024 with a tough, challenging macro environment, but we do expect to see organic growth get back to a normalized rate and growing in that four to 6% range starting in 2025. So that's a key component to us getting to the $3. On the restructuring savings, obviously we're making a number of investments this year that's offsetting the growth savings from the restructuring program. But obviously a lot of these investments we're making, we're expecting to get returns on. So overall that should help us get towards that $3 EPS target. The benefits that Tony Johnson walked through around global operations and 20 cents of EPS improvement, none of that's reflected in our numbers essentially today. So we'll have a small amount in 2024, but most of that will come in 2025 and 2026 as we go through the plant optimization, the skew rationalization, and our distribution footprint simplification. So that's all really in the 25 and 26 timeframe. We've talked a lot about the work we're doing with ERP, and right now that's an actual headwind to our costs. That will eventually become a benefit to us as we get to 2026 and can do some things around our cost structure and being more efficient once we have a common ERP platform. And then aligners profitability was also part of our bridge, and I feel even more confident now with our aligners profitability. Yes, we're making some investments early in 2024 for Byte, but we really like what we see with our aligners business right now. And so overall, nothing has changed from those aspects. You know, below the line, we've got the net investment hedges that we communicated 7 cents back in November. That's consistent with our guidance that we just laid out here, and that'll continue in 25 and 26 to be a similar benefit for us. And then the share buyback program with the incremental cash we expect to generate will also help us get to the $3. So nothing new, Jeff. We're consistent with our messaging from November. And obviously, getting the organic growth back to a normalized rate in 4% to 6% is going to be key for us.
spk01: Yeah, that's helpful. Thanks for all that. And then, Simon, maybe a bigger picture question. You're talking about EDS being flattish this year. That's probably, I would assume, within plus or minus a few points, a couple points of market. What was pricing in EDS for 2023? What do you think it's going to be in 2024? And I think Even more importantly, you know, you're spending 4%, a little more than 4% on R&D. I would assume not a lot of that R&D is going to general consumables. But we've been hearing more and more from public-private dealers, from even some of your core manufacturing peers. that there's been a lack of innovation on the consumable side for five, six, seven years now, and that's allowing some of these private label products or maybe lower-priced branded alternatives to come in and really put pressure on the higher-end branded consumable products out there. So how important is innovation in consumables? Do you have enough in that 4% R&D number to fund any kind of spending in that area? And how should we think about EDS maybe over the multi-year period then with those trends starting to flare up maybe a little bit? Thanks.
spk22: Sure. Thanks, Jeff. So I think your first question was around pricing. I would say very, very modest pricing on the EDS side in 2023, and we expect arguably even more modest pricing in 2024 and beyond. Now, with respect to innovation, as we noted in November-December timeframe, we brought on a new chief technology officer who is driving a far more disciplined and organized process than we've had historically at Dentsply Sirona. We've already made meaningful changes to how we innovate and how we milestone and monetize new product introductions. Around innovation in EDS, I think the 4% is an okay number for now. We have to be extraordinarily diligent with how and where we spend. That 4%, and that's what Kevin is doing right now. A large part of that 4% is going towards the digitalization of dentistry and DS core. We do see that as, no pun intended, as core to our future. And we have seen the improvement in adoption as we expand the clinical functionality of it. We do spend, I would say, a significant amount of money on innovation in our EDS portfolio. And I mentioned the launch of the Exmart Pro device late last year, which will launch in the U.S. later this year. So we are innovating. The feedback is positive on that. We need to be extraordinarily diligent with respect to identifying unmet clinical needs in the EDS portfolio so that the products that we launch are meaningful and are not simply Me Too products and make a difference to the patient outcomes and to clinical efficiency. Is there an opportunity for lower prices? For sure. And we have demonstrated that we are prepared to do so where appropriate. We launched PrimeScan Connect in the DI space two years ago. As Glenn noted, we've seen, I think, rapid uptake of that, particularly in 2023. And as Glenn also noted, we have both premium and value-based implants, which showed similar growth trajectories in Q4. So we are not afraid of the value segment when we know what we're getting into. Andreas? Fair enough. Thank you.
spk10: Maybe Jeff just just one comment to add just an EDS specifically it's not just about basic chemistry right, a lot of it has to do with packaging with delivery methods methods to make the practice more efficient. And one area that I would also point out in terms of focus is digital materials right so both in terms of milling as well as printing that's an that's an investment that we lean behind and where we see good growth going forward.
spk16: And one moment for our next question. Our next question comes from Erin Wright with Morgan Stanley. Your line is open.
spk29: Great, thanks. So can you talk a little bit more about the implant competitive environment right now across the geographies and underlying demand there, but also more just from a competitor disruption standpoint, can that present any sort of opportunities for you? Thanks.
spk22: Hey, Erin, thanks for the question. Let me start with China specifically, and then maybe Andreas can take the competitive piece. We've been super happy with China performance on implants this year. We grew significantly in implants this year in both the private and public sectors. That led to growth overall in China, despite the headwinds that we had in early 23. And as Glenn noted, we expect more than 25% growth in implants again in China in 2024. So it clearly shows that our team can execute in China with respect to implants. We've, as I noted previously, our portfolio across the board, but particularly in implants, is very, very competitive. The 2000 customer survey that we did last summer uh told us that our portfolio is very very competitive and has no meaningful gaps um so we're we're we're quite comfortable with it uh we have demonstrated i think progress in in the us where we've we've where we slowed the deterioration uh throughout the year and as glenn noted we expect to grow implants in the us in 2024 at uh and in response to a previous question i i noted that you know as part of our three dollar bridge we expect implants to be growing at market rate by 2026. That's our expectation.
spk07: Yeah, we just had a couple of things. I mean, our fourth quarter performance in implants and prosthetics was the best quarter that we had all year. We actually grew double digits. Obviously a lot of that coming from China, but we also had really good performance in Europe. And so the two together obviously drove a good result for us. We did see improvements in our US implants business, but it's still declining. We are not happy with where we're at there. We do expect it to get back to growth in the second half of 2024. We've done all the things to turn that business around. So we feel good about improved performance in our U.S. implants business, but overall did see less of a reduction in the U.S. in the fourth quarter as well. Andres, you want to make a couple comments as well?
spk10: Yeah, I'm just thinking sort of back to portfolio commercial excellence where we've made investment, but also clinical education, which is an area that we have – built upon and leaning into. So you've heard the comments previously. So I think that's one important point. The other element is the implant part also comes with the prosthetic solutions. And that's where we have a very competitive portfolio, including custom abutments and a highly digitized workflow that links into DS-Co over time. So that's an area that we also feel will be an important driver of incremental growth here over the period.
spk29: Okay, thanks. And then just a quick one on capital deployment. And you mentioned the near-term buybacks and your plans on that front. But I think you said previously that you'd be back in the market potentially doing deals in 2025. Is that still your thinking on that front? Do you see near-term pipeline opportunities from a deal perspective? Or where is your stated targets on that front? Thanks.
spk22: So I think near-term opportunities may be technology-type acquisitions. that require little integration, Aaron. And then I do think we'll be back in the market in 25 and beyond for larger scale M&A that requires integration. But we are focused on ourselves right now in 23 and 24. Unless we see something that's a nice tuck-in, we'll probably avoid it until 25 when when we've restored the stability of our organization.
spk07: Yeah, I think the good news is our balance sheet could support M&A activity. We have low leverage. We're at 2.6 times, and that should come down here in the next couple of quarters. Have a strong liquidity position. We're expecting to generate more cash flow. So from a balance sheet perspective, we could support a really robust M&A strategy. It's organization capability in the short term as we work through some of our foundational initiatives and transformation initiatives. Thanks.
spk16: Our next question comes from the line of Brandon Vasquez with William Blair. Your line is open.
spk09: Hi. Thanks for taking the question. First, on a modeling perspective, you guys are pointing to about 100 basis points of view without margin expansion in 24. Can you just talk about maybe the cadence of that expansion through the year? I know you guys have made a lot of recent commercial investments, so maybe they need some time. Should we think of this more as, you know, the back half of the year we'll see some of this margin expansion, or should we be modeling for this to be pretty evenly split throughout the year?
spk07: Yeah, it's more back-end loaded, but we would expect even a margin expansion both in Q1 and Q2. but more of the expansion coming in Q3 and Q4. And the main reason behind that is some of these investments that we're making are more front-end loaded in the year, and the restructuring savings obviously are more benefiting the back end of the year. So we do expect even a margin expansion starting in the first quarter, but most of it will happen in the back half of the year.
spk31: Okay.
spk09: And then maybe just one quick follow-up on BITE here. I think the commentary around expectations for 20% plus growth were pretty notable. I guess the question is kind of like, what gives you confidence? You know, I know you're seeing some early pickup right now. What gives you the confidence that this can be durable given expectations for what seemed to be a still kind of difficult macro within dental? You know, this seems to be a highly kind of sensitive market to to the macro side. So how do you guys feel? Do you need an improvement in macro to hit that 20% plus in Byte? Thanks.
spk07: Yeah, I think we're counting on a stable macro environment to hit these numbers. I mentioned earlier, increase in unique visitors to our Byte website is a very positive trend for us. More importantly, impression kits going up significantly. And I won't give you the exact number, but it's well north of 50%, just to give you some context. the last couple of months and what we've seen. So it's that type of growth. And obviously, not all that converts to revenue. But we do think our conversion rates will also improve as we get further into the BITE plus hybrid model that Simon outlined earlier. So when we look at some of the indicators, including what we're seeing in the back half of February, when we expect to see some of this convert to revenue, we feel quite good that BITE's going to put up some meaningful growth here in 2024. I would just say that, you know, we did see some headwinds on the financing front in the fourth quarter with bites. A bite only grew 6% in the fourth quarter. We had some financing constraints. A lot of it was subprime customers. We worked through some of that here in the first quarter as well. So that got a little bit better as we've gotten it to 2024. But that obviously to your point is macro dependent to a certain extent. So we're keeping a close eye on that. But with the investments that we're making now, adding more treatment planners, clinical and sales support people, I feel like we've got a really good path here to generate 20-plus percent growth invite in 2024.
spk16: Our next question comes from the line of Kevin Caliendo with UBS. Your line is open.
spk08: Thanks. Thanks for getting me in. I appreciate it. I just want to talk about the sort of expectations for the macro. You talked about it with Byte, but I want to talk about it just in the context of, you know, right now it's a difficult macro environment. Organic growth is zero to one and a half percent. Next year you expect it to get back to four to six. How much of that four to six is predicated on the macro returning to normal or how much of that is predicated on innovation and market share gains? I'm just trying, I'm really trying to understand when do you think the macro starts to improve or what's sort of predicated in your guidance for that to happen?
spk22: So let me start Kevin about, about there's another, there's another function here and it's, and it's called execution. And that, that, that's within our, that's within our control. I think, you know, over the past year, we've demonstrated that we, that we're bringing improved systems and processes to our, to our company, which includes commercial adjusting, how we, how we, pay our sales reps, and investing in clinical education, which we know is crucial for dentists and welcomed by dentists and particularly by DSOs who want to partner with us on the provision of training. So part of that 4% to 6% is ourselves getting better and improving at execution, and we've demonstrated that we are well underway in that process. Glenn, do you want to comment on the macro piece?
spk07: Yeah, I think as we look at 2025 and getting back to 4% to 6%, we're obviously counting on a much more normalized macro environment. Share gain-wise, I would say ortho is an area we would expect to continue to gain share. Sales execution-wise, the implants business would be the area to expect improvement in 2025 as well. But the equipment side of our business has been the big headwind for us. Mm-hmm. The thought is interest rates will start to come down in the back half of this year, continue to come down in 2025. That should help the overall equipment environment. And if we see a turn in the equipment side, if you look at the rest of the numbers, we're actually performing quite well. That should get us back to more of the 4% to 6% range with the ortho gains that we're expecting in terms of market share.
spk08: That's a super helpful answer. And just On SureSmile, quickly, how much of the growth of SureSmile is tied to the new scanner? Meaning, are you seeing a correlation there that's driving growth? Is SureSmile driving the scanner growth? Is the scanner driving SureSmile growth? Is there any correlation that you see? I'm just trying to understand sort of how it's being positioned in the market.
spk22: I think there's probably a correlation between both of them, Kevin, for sure. We've also added the SureSmile simulator to DS Core, which, as I noted in response to a previous question, has driven up treatment acceptance rates in our customers. And we also have not been shy in driving what we feel is a differentiated offering compared to our competitors with respect to the fewer revisions. So I think it's a combination of many, many factors. And, you know, back to the previous question, execution and commission plans is another factor. Glenn, you have something to add?
spk07: I think the only thing I would add, Kevin, you probably remember in 2023, we mentioned that we equipped all of our ortho reps with scanners. And so we have seen some really good momentum post that decision. So that was an investment we made. We're seeing some payoffs. And it's hard to say how much of the growth scanners are driving in terms of the actual aligners versus the other way around. But I think on the whole, the decision to invest in scanners, get them in the hands of our reps, is paying off and we're seeing strong double-digit growth insurance model.
spk17: Sounds good. Thanks, guys, so much.
spk16: Our next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.
spk15: Hey, good morning. Thanks for squeezing us in here. Wanted to start maybe with a follow-up on Byte. It definitely sound more bullish than I think where we were maybe in the second half of last year. Maybe hard to break down, but how much of the 20% growth would you characterize as maybe share gains from that other DTC player exiting the market versus just a healthier view of the macro? And I guess maybe versus benefits you're making yourself. Just trying to understand maybe what's exogenous here versus what's you know, what's attributable to your own actions in that 20% growth outlook as we really try to think about what's sustainable beyond 2024?
spk07: I think the majority of the growth is coming from the competitive dynamics that have taken place over the last couple months. So certainly more than half of that growth.
spk15: Okay. I guess, Glenn, you're still making a lot of investments in this category, though. So, I mean, I guess... As we think about the sustainability of growth, I know there were some questions earlier on macro dependency, but would you agree this can still be a growth leg for you, not necessarily 20%, but still well above company-wide as we look beyond 2024? And then a separate follow-up, you sound a little more confident, I thought, about or bullish on 3D printing. You know, how much more progress has to happen, do you think, on the resin side before uptake and prime print really inflects higher?
spk07: Yeah, I think we would expect Byte to continue to have healthy growth going forward beyond 2024. So I'm not going to say it's going to be 20% plus, but certainly it's going to be a faster growing part of our portfolio even beyond 2024. Maybe you can comment, Andreas, on the 3D printer? Sure.
spk22: Before he does so, just staying on Byte for a moment, Jason. We demonstrated last year that we're able to drive net income performance on the Byte platform. That is an inherent assumption of ours going forward as well, despite the investments we're making to tap into the opportunity that has presented itself. We're not looking to get all of the opportunity. that's presenting itself, we're looking to get the profitable opportunity that's presenting itself.
spk10: In terms of the resins and the printing equipment, what gives us confidence there, I think, is the shift of the market to looking for a a safe and secure and a connected solution that is applicable to their office, right? So we're moving from sort of this very early adopter technology segment in printing to a more sort of workflow-focused customer segment, and that's where Prime Print is positioned. And that's sort of where we're looking to grow our solution here and also integrating our materials and our workflows for dentures and... and sort of other splints, printed impressions, drill guides, the usual sort of applications that you would see in an office with PrimePrint.
spk20: All right, thank you so much. Thank you.
spk16: Our last question comes from the line of Michael Petusky with Barrington Research. Your line is open.
spk11: Hey, good morning. I may have possibly missed this, but I don't think it was mentioned. Did you guys talk about any impact quantification of how Shine's issues may have impacted your fourth quarter? Is there any talk about that? Or if not, can you talk about that?
spk07: Yeah, no, we haven't mentioned anything around that impact. I would just say we built some conservatism into our guidance back in Q4. We really didn't have any significant impact from that incident yesterday. So obviously there was some impact, but you have also some dynamics of where we saw improvements in other orders coming from dealers. So for our business, minimal impact, and that's all we're going to say about that. Thanks.
spk11: And then just a quick follow-up on Byte, which is popular today. I hear the great data point about the impression kit ramp and also some of the orders starting to follow through. I'm assuming, though, you know, when you say, hey, the conversion rate, we expect that to improve. You haven't seen evidence yet of that. Is that fair?
spk07: That's fair. Our conversion rates are pretty consistent from what we've seen in the last couple of quarters. So that's correct. I do believe, though, if BytePlus is successful, and that's our hybrid model, that could potentially help our conversion rates tick up. But we have not seen it yet.
spk13: All right, very good. Thanks, guys. Appreciate it. Thank you.
spk16: And this concludes today's question and answer session. I would now like to turn the conference back to Simon Campion for closing remarks.
spk22: Thank you. Thank you, operator. So thanks to you all for joining today's call. Before we close, I would like to leave you all with some key points. Firstly, we are well positioned in attractive industries. We have the largest end-to-end dental portfolio that is more than 45% digitally connected. We do have leading brands and strategic objectives that focus on high growth areas such as aligners, implants, our digitalization strategy enabled by DS Core, and continence care. Secondly, our transformation is taking place. And while there is more work ahead, we do have a clear and actionable path to accelerate profitable growth. We expect that 2024 will be an inflection year for improved profitability and adjusted EPS growth. Thirdly, we are building a durable, sustainable business that's better positioned to navigate external challenges and capitalize on new market opportunities as we move forward. We remain with our conviction that we are on the right path to deliver meaningful value over the long term. As you may have already seen earlier today, we also announced Eric Brand's intent to retire from the Board of Directors following our May annual meeting. Eric has served as a director of the company for nearly 20 years and as chairman for six years. I would like to express a sincere thanks to Eric for his many years of services to Dentsply Sirona and wish him all the best in his future endeavors. And finally, on behalf of our management team, I would like to extend our gratitude to all our employees for their tenacious commitment to the business and the ongoing transformation process. And we especially want to express our appreciation to those employees who have been impacted by our restructuring program and wish them the very best in their future endeavors. Thank you.
spk16: This concludes today's conference call. Thank you for participating. You may now disconnect.
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