Q2 2020 DENTSPLY SIRONA Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the dance flight your own <unk> earnings Conference call. At this time, all participants are in listen only knowledge.
Third the speakers presentation, there will be a question and answer session to ask a question. During the session. You want me to press Star one well your telephone and please be advised to today's conference is being recorded.
Require any further actually since its first start and Sheryl I will now and the conference over to your speaker today John Sweeney.
Thank you operator, a good morning, everyone welcome to our second quarter Twentytwenty earnings Conference call I'd like to remind you got an earnings call press release slide presentation related.
Oh are available on our website www dot supply Sirona dot com.
Before we begin please take a moment to read the forward looking statements <unk> earnings press release during today's call, we make certain predictive statements that reflect our current views about the future performance financial results. We base. These statements in certain assumptions and expectations of future events are subject to risks and uncertainties. Our most recent fan.
Okay lists some of those most important risk factors that could cause actual results to differ from predictions.
With that I'd now like to turn the program over to Don Casey Chief Executive Officer that supports.
Thank you John and thank all of you for joining us today.
We hope that you and your family's remained safe and healthy.
To start the call I would like to acknowledge two groups that deserve both our gratitude and recognition.
First is our customers.
Throughout this pandemic dentists understand have shown tremendous resilience.
They're dealing with changing local regulations adjusting to new safety protocols are finding new ways to help patients Dennis all over the world have adopted and innovative their commitment to their patients is inspiring.
The second group is the employees of Dentsply Sirona.
Over the last six months, they have been challenged and truly unprecedented ways.
Throughout they remain focused on serving our customers creative we addressing new circumstances and continuing to make progress on our critical initiatives.
This highlights the people have done sports Sirona in the culture. We are building are truly our most important assets.
I would like to thank all of them around the world for their extraordinary efforts.
It is a privilege to lead such a committed and passionate group.
Our call today will focus on four key areas.
The first is the alwan or second quarter results.
The second is to provide some details on how our business has been performing as dentist's offices reopened.
The third Erie provides the steps that Dentsply sirona is taking to position the company for the future.
And finally, I will review the company's near term priorities as we navigate the current environment.
As expected our second quarter results reflect the major changes in the market.
The quarter began with significant governmental actions, resulting in the shutdown of dental practices and restrictions on patient traffic.
The situation improved across the quarter with.
On the month improvements in terms of dentist's offices opening and patience beginning to come back.
Our revenue followed this trend.
Our team continues to track patient attitudes around returning to the dental office as well as the ongoing impact of additional infection control requirements on office capacity.
Based on what we're seeing we're optimistic that the recovery is well underway globally.
Our results in the quarter also reflects significant actions the company took to address the difficult operating environment.
These plans were built around employee safety meeting the needs of the customer enhancing the financial strength of the company and making continued progress on are key strategic initiatives.
Today, we've seen good results around employee safety and have not seen any major disruptions across the organization.
Despite challenges presented by the pandemic the company has been able to reliably meet customer demand.
Our commercial team showed excellent creativity and adapting to new circumstances, providing an extensive array of digital clinical education and online marketing events.
These programs have been extremely well received.
A comprehensive cost control program was executed during the second quarter involving furloughs short workweeks salary reductions in spending controls.
These efforts contributed to the drop in S. DNA expenses in the quarter.
While the business has begun to restart.
This program will remain in place until the trajectory of the recoveries better understood.
Our supply chain has been disciplined around inventory and there's been a real emphasis on protecting our cash flow.
Finally, the company undertook a series of actions to bolster its liquidity and financial position.
While there is a pressing need to manage the disruptions caused by the pandemic. Our team is focused on positioning the company for the future.
Since announcing a restructuring in late 2018, Dentsply Sirona is made significant progress against the goals we had laid out.
Our work on continuously challenging ourselves has shown there was still further opportunities to improve our performance.
Therefore today, we're announcing additional portfolio actions that expand on the original program.
These include plans for exiting be traditional orthodontics business as well as parts of our analog lab business.
I will discuss details later in the call.
These steps while difficult allow the company to focus on higher growth and higher margin digital areas, where we believe dentsply sirona have strategic advantage.
Moving to slide seven where we summarize our Twoq you 20 results.
Second quarter revenues were $491 million down 50% on an organic basis due to the impact of the Corona virus.
Adjusted operating income was negative non-GAAP EPS for the quarter was a loss of 18 cents.
Cash flow was actively managed in the second quarter driving cash flow from operations of $175 million, which was up 21% compared to prior year.
I will now turn the call over to Jorge who will review the quarterly results and provide an outlook.
Thank you Don and good morning, everyone.
The second quarter was obviously, a challenging one for the global economy and for many industries, including dental.
On a slight nine we show our second quarter non-GAAP Twentytwenty PNM.
Starting with a topline organic sales were down 50% as compared to the prior year.
In the U.S. and Europe with some minor exceptions dental practice is limited their activity to emergency procedures in April and much of May and then began to reopen as we moved into June.
As we share on our last earnings call, we saw declines of 60% to 80% in April in certain geographies with the U.S. been hit the hardest, but our revenue trends improve gradually each month, finishing down about 40% compared to prior year in June.
We also saw a gradual improvement from the first we had last week in June. So it is clear that we're seeing a recovery, but have yet to get back to a normal level sales.
Gross profit was 207 million were 42.1% of sales down from 57.7% in the prior year quarter.
As it is the case insulin and material reductions in volume gross profit margin is impacted by the fixed cost base, which is difficult to address in the short term.
Examples of these cost include depreciation leases maintenance of manufacturing and logistics facilities and costs related to ensuring compliance with high manufacturing standards.
Gross profit margin was also impacted by higher than average inventory reserve expenses of approximately 17 million, primarily as a result of lower sales.
As DNA of 249 million was down is substantial headwind 32 million, which is approximately 35 person lower as compared to prior year.
During the quarter, we took decisive action to reduce our assay in a cost resulting in the steep year over year decline.
One area and asked DNA that actually increased over last year was bad debt expense, which saw an uptick of 15 million year over year.
This significant PML fluctuations were driven by the ongoing market disruptions and generated an operating loss of 42 million in the quarter last year. Our operating profit was 202 million in the second quarter.
Interest and other increased by 9.9 million versus last year, driven by the issuance of 750 million in long term debt. The addition of new credit facilities and determination ups or an FX hedges.
Non-GAAP tax rate was 27.5% in the quarter up from 25.3% in the prior year a function of the change in the estimated amount of pre tax income and a change to the expected income mix.
Non-GAAP EPS was a loss of 18 cents as compared to non-GAAP EPS of 66 cents in the prior year quarter.
Moving onto slide 10, where we review our consumable segment performance.
Reported sales were 887 million down, 58.6% and down 57.7% on an organic sales basis.
All of our product groups in consumables were negatively impacted by the temporary closure of dental offices.
While our consumable sales show a steeper decline than our T. any sales both segments actually performed relatively similar from an end customer perspective.
Let me explain the two factors that contributed to look to it to the larger decline in or a consumable sales.
First there's a difference in order lead times.
Consumables deliveries tend to match demand almost simultaneously.
Up or down.
Due to the nature of the products tea and he has a longer order lead time, and therefore deliveries continue over an extended period, even after dental procedure volume is slowed down at the beginning of the quarter.
The second factor impacting consumables more than peony that fluctuations in inventory levels in the dealer network.
During severe market conditions. It is typical for companies to preserve cash by lowering inventory balances as much as possible.
We saw a steeper decline in consumables network inventory.
So when you account for all of these variables. We believe both segment decline I relatively similar levels.
Consumables operating margin was negative 9.4% as compared to 27% in the second quarter of 2019.
There are two primary reasons for the decline in consumables margins.
The first reason is that the consumables segment experienced a steeper falloff in sales compared to T. Any.
Second.
In the past couple of years, we have completed several portfolio shaping actions, including foreigner, one 800, dentist sicad and the surgical business of wells back.
In addition, the two portfolio shaping activities. We are announcing today, we will further consolidate our manufacturing footprint and will increase productivity and decrease fixed costs.
Moving onto slide 11, where we highlight our technologies and equipment segments.
Net sales were 304 million down 45.6% as compared to prior year.
Organic sales for the quarter were down 43.6% versus the prior year.
Equipment and instruments digital dentistry and implants, all experienced similar levels of decline in the quarter driven by the lower sales, resulting from call. It 19.
Our healthcare business saw a slight decline in Q2 after posting a strong Q1 as healthcare systems were getting ready for the first major waves of carbon 19.
Acknowledged and equipment operating income margin was negative 1.3% versus 17.2% in the prior year quarter.
On slide 12.
We show our business performance for the second quarter on a regional basis.
U.S sales of headwind 31 million declined 60.3% compared to the prior year.
This represents a decline in organic sales of 60%.
In the U.S market consumables declined slightly more than any.
European sales were $215 million down 49% compared to prior year.
Organic sales were down 46.9% versus last year.
In Europe consumable sales declined more than technologists and equipment on a percentage basis.
Rest of the words sales were headroom 44 million down 44% on organic sales were down 41.9%.
The rest of the work consumables decline more than TNT sales in the same in the second quarter.
On slide 13, we show our cash flow performance.
In the second quarter of 2020 cash flow from operations was headwind 75 million as compared to headwind 45 million in the prior year quarter.
This is strong cash flow generation was the result of a disciplined approach to curtailing expenses and reducing working capital without sacrificing key strategic investments.
Working capital generated a significant imposed in liquidity in the quarter, we were successful in achieving meaningful reductions in accounts receivables and inventory balances.
We expect some of this cash will be injected back into working capital as demand and production volumes climb back up to normal levels.
In terms of capital expenditures, we spent 13 million in the second quarter of 2020 down from 27 million last year.
Free cash flow was a strong headwinds 62 million in the quarter up 37% as compared to 118 million in the prior year.
In the quarter, we paid 22 million in dividends for a total of Hendrick $84 million returned to shareholders through dividends and share repurchases in the first six months of Twentytwenty.
At the end of June 2020, we had a strong liquidity available comprising 1.1 billion of cash and 1.2 billion of committed credit facilities.
The Air Force, we made during the second quarter ensure that we have ample liquidity available to invest and grow the company as the economy recovers.
On slide 14, I'd like to talk about the significant actions, we took to reduce operating expenses in the second quarter of 2020.
Our efforts to reduce costs in the quarter where multifaceted.
All levels and functions of the enterprise contributed to significant compensation savings.
Each part of the organization opt to and including the board of directors and executive levels is step up and helped in this efforts.
As of today, most of our employees who were impacted by these measures have returned to work or to normal pay levels.
The next largest area for cost reductions was discretionary commercial spend such as advertising and promotions.
He was logical to reduce the spend when dental offices were closed and the returns could not be realized.
We also achieved significant savings from reductions in professional services and of course travel expenses.
Together all of these actions deliver a reduction in SDMA of 35% versus last year.
With respect to business trends for the remainder of the year I'd like to make a few comments.
First let me start with current volume trends.
All regions recover from their low point in April and improved by 20 to 40 percentage points by the end up the quarter.
Additionally in June the last week of the month was significantly better than the first week.
And we are pleased to note that the positive momentum continues into July.
With July sales approaching or surpassing 2019 levels, depending on the region and product groups.
There are still some gating factors in plays including the availability of personal protection equipment, new infection prevention protocols, reducing office capacity and overlapping regulations, all of which impact the shape of the recovery.
Together these factors point to a gradual as we post with Solden snapped back in demand.
Let me give you more details from a geographical perspective in the us virtually all dental offices are now open and we continue to see signs of improvement.
With July volumes trending better than what we saw in June in Europe. We also so july trends improving sequentially.
With regards to rest of the we're in a back to some of the markets turn positive in July with good traction in China, and Japan, and some lingering concerns in Australia.
Latin America remains a challenging market as covet 19 continues to impact our business in Brazil, and our countries in the region.
Moving forward to a second half of the year as we announced today, we are accelerating actions to fund growth areas and improve efficiencies as we did in Q2, we will continue to drive a disciplined resource allocation process that emphasizes return on investment and sustainability of our growth initiatives.
With that I will now turn to call back to Don.
Thanks, Jorge and moving to slide 17.
As I mentioned earlier in the call in November 2018, we put a plan in place to accelerate growth improved margins and simplify the organization.
Our results through 2019 in the first quarter of 2020 show significant progress.
The execution highlights of our plan include accelerating growth behind new products, including Prime scan and Prime mill as well as other new products in our consumable portfolio.
The pipeline a future new products has also been enhanced.
The company has made major investments in critical areas like our digital product portfolios.
Digital commercial capabilities and growth priorities like our shores mile clear aligner business.
Dentsply Sirona has implemented a new organizational structure centralizing supply chain and other functions, while creating a unified commercial structure.
There have been major initiatives designed to transform the finance HR and II areas.
Further we have undertaken multiple portfolio shaping activities, including the ones announced today.
The restructuring plan is an multiyear initiatives as part of that the organization has embraced the need to continue challenging ourselves to go beyond the original plan and deliver better results.
That work has shown there are significant opportunities in both the near term and longer term.
Moving now to slide 18.
Over the last several quarters as Jorge mentioned, we have exited several underperforming businesses.
These reduce our cost and complexity, while serving to enhance our growth and margins.
The team continually reviews, all our businesses against a framework around future growth opportunities as well as strategic fit.
In the area of Orthodontics, we believe that the clear aligner space is an attractive opportunity for Dentsply sirona.
Sure Smile now offers a comprehensive digital treatment plan that positions the company well in this rapidly growing market.
Going forward, we will focus all our efforts in the ortho space on the clear Aligner area.
We believe this offers the opportunity to grow innovate and take advantage of many of Dentsply Sirona is unique strategic advantages, including our large CEREC user community.
As a result, we're exiting the traditional orthodontics business, which includes brackets bands tubes and wires.
The traditional orthodontic business as a component of the technology and equipment segment and has had net sales of approximately 132 million in 2019.
Likewise in our lab business, there is a clear opportunity to focus on the digital space, which is showing good growth rates and solid margins.
It is a place where innovation will be rewarded.
Based on our analysis. It is critical to focus all are lab resources in the digital Larry going forward.
As such we are announcing plans to exit the analog portion of laboratory business that manufacture removable dentures and related products.
This business is a component of the consumable segment and had net sales of approximately 44 million in 2019.
Together the portfolio shaping initiatives and additional actions are expected to result in the closure of several facilities and the incremental reduction of approximately 6% to 7% of the company's workforce by the end of 2021.
The ongoing execution of the restructuring will enhance dentsply Sirona is continued efforts to grow revenues expand our margins and simplify the organization.
Slide 19 lists our priorities for the back half of 2020.
They include executing on our comprehensive restructuring plan.
Pursuing our growth initiatives aggressively and meeting our financial objectives.
In conclusion, the coated pandemic will continue to impact our industry and our company for the foreseeable future.
Current trends are positive and a reason for optimism, but we will need to continue to adapt to the circumstances as they change.
We believe we have a comprehensive plan for both the short term and longer term to deliver value for our customers and our shareholders.
Further the company has maintained its focus on our priorities around gross margin expansion and simplifying the business.
Our financial strength broad portfolio and global reach our position us well to succeed and win in the dental industry.
It's hard to know what the new normal is or when it will arrive, but our internal theme is that teeth do not he'll themselves.
Our team is optimistic about the fundamentals of the industry.
And we embrace the current challenges and are confident in our strategy our customers and our team.
Thank you and with that we'll take questions.
Thank you and ladies and gentlemen, if you have a question at this time just press Star then want to getting the Q to withdraw your question safely.
Pound or cash please standby, while we compile that Kieran and Ross staff.
Our first question is some Jeff Johnson with Baird. Please go ahead.
Thank you. Good morning, guys can you hear me, Okay. I think it was on mute.
Yes, we got to Jeff.
Great. Good morning, So it's done I think I just want to start with the July comments I really want to understand maybe message that you want to have out there.
It sounds like you can make the argument July was getting back to.
Flattish year over year levels, According to what Jorge said.
But how much of that might be sell in that was recovering off some sell any issues earlier in the quarter earlier into Q.
Does your sell in is it starting to match kind of the sell out at this point and again I know you're not guiding but for Threeq. You should we think July Navy is unsustainable as you get into August and September is if there is some backlog is helping in that July number. Thanks.
Yes, Thanks, Jeff.
Look I think Jorge set of clearly in the prepared remarks as we as we're looking at July There's places that have we're seeing good progress in some cases, it's actually exceeding 19. Your specific question about how much of that is inventory rebuild.
It's hard to see exactly there's a couple things were looking at and.
That's that's one of the reasons, we're not being okay. Let's just go project July into August September in those and later in the fourth quarter. The things were looking at as patient volume and we've seen that is good office capacity, we see office capacity kind of improving our patient tracking is telling us that.
Confidence in the dentist office continues to go up but there is a pocket that's going to be reluctant at least in the us to go back for a little while and what that in our mind means that okay look if we're getting capacity in the in the dentist office back to close to normal that's going to take a little bit of time.
I think we're working through a bolus of patients right now.
And then I think from an inventory perspective, our dealers and the dentist's office ultimately are working through the fact that.
When the pandemic started I think people hit the brakes pretty hard on stuff that is ordered almost every day and in our minds, that's kind of the consumable space.
And you can see Jeff the difference between our consumable and technology the TNT side.
And we believe that is a lot to do with okay.
We don't know how long the office is going to be closed we're going to stop building inventory on the daily stuff and as a result, there may be some build back here.
But look I in my summary, I was pretty clear on saying, Hey look we were happy that we saw consecutive month to month sequential improvement.
In overall demand, we're seeing that at the retail level. We're happy that July is continued that trend and we're happy to see that in some cases. It we know we're actually tracking better than 2019.
Understood Thats helpful. Thanks, Don and just as a follow up thinking about 2021 conceptually.
We all know what the saying about high likelihood that dental consumption and dental industry like revenues are down relative to 2019 level.
I don't think anybody would really argue with that at least looking at things right now, but with some of the extra restructuring efforts, you're taking now some of the tailwinds from the restructuring that would probably still continuing from the past plan.
How do you think about margins, especially next year can they get back to 2019 levels with revenue that at least is approaching 2019 levels next year or is there a lag in kind of the margin recovery relative to how we think about.
Revenues next year. Thanks.
Yes, Jeff it's early for us to really forecast 2021, I would tell you. The steps we took around the restructuring their reflect our interest in sitting there, saying hey look.
We need to get back on the margin progression I mean, we've we've been saying since November 2018, how do we grow how do we get our margins improving in the I think we have to takes organizational steps to do it I think the results.
Here show you that we think we've made some good progress I mean basically through the first quarter. A 2020, we were tracking on a margin basis.
And what we've seen.
Obviously, our margin is revenue dependent.
And you know it look if revenues down 20% in.
2021, that's obviously going to have an impact on the business. We don't think thats going to happen, but we are taking specific steps now to sit there and say you regardless of of whether the category is up two or three are down two or three are up 10 down 10, we want to be taking steps toward margin accretion and as we get out of the traditional worth.
No business, we get out we got out of the analog lab business. Those are all part of the ongoing restructuring designed to help us really take charge of our ability to drive margin accretion going forward.
And I'm not going to say, it's going to be revenue independent, but we think we can take steps.
At a certain revenue base that we're really going to be able to drive margin and we were very clear.
I joke with John Sweeney occasionally that we picked our revenue targets to match the years just to make sure that we can always communicated. So we've always said 22 in 2022.
And internally what we're trying to focus on is look we think 22 is attainable. We don't know if it's going to happen exactly on the trajectory based on what.
We're seeing with Covidien as coded and the.
Knock on effects of that is at a six month issuance of nine months at through 12 month issue, but we want to be marching back towards that target. It just may take us a little bit longer to get there.
Thank you.
Thank you and our next question comes from tie call Peterson with JP Morgan. Please go ahead.
Hey are you able to talk about how much of the consumable pressure in the quarter was inventory de stocking versus slower orders and then how much incremental risk is that going forward with distributors around potential additional destocking.
Good morning, Tyco off this is Jorge.
It is.
It's hard to.
Give any precise number but as Don just indicated.
In the case of consumables there is a the order lead time is very short and so when the pandemic head.
Customers and dealers and in general into into marketplace. There was a in reaction to to manage inventories very very closely and not when we look at the data have bought retail sales and our sales.
There are a lot of indications that show that there was a reduction and the inventory levels that we historically are typically.
Carry in the network. So there was an element of that and.
When that comes back to typical levels is hard to two project out some of that may be happening that size as Dan indicated.
But I don't think that is something that.
For us is going to be meaningful from a long term perspective listen at the end of that we always want to make sure that our sales match retail sales that that is that is our key objective. That's how we make money there will be always small fluctuations and the network.
So I think in given the magnitude of the changes that we experienced in the second quarter or as a result of lower revenues and the uncertainty that we still have in many places I think that is that noise is not actually meaningful in terms of explaining our performance and.
Our trajectory over the next several months.
Okay, and then down on the portfolio reshaping I'm curious you know the decision to exit ortho I always thought part of the pitch on the clear Aligner was you know the ability to go and do hybrid cases and leverage that strong ortho channels you push push out your smile. So I'm curious if there is risk of Dissynergies here.
And how you think about that.
Yes, Thanks Heiko.
We're actually there is a component of the you know the wire bending aspect of shore Smile that we're keeping what when we say how we kind of delineate traditional ortho, it's kind of the brackets bands that would go straight up on a orthodontia orthodontist using orthodontia.
The.
We believe hybrid is meaningful we believe that it's a differentiator for sure smile. So we were actually keeping those components. So that piece of traditional ortho and the piece that actually came with the or metrics acquisition is going to stay with that.
And then what we're seeing is where we're getting real traction onshore smiled tends to be AWS right now focused around our CEREC base.
We kind of made that shift.
At the basically in October of last year, and Thats part of the one DS program and we're seeing good traction there. So as we look going forward, we didnt feel that there were going to be dis synergies associated with getting out of traditional.
You know orthodontic treatment among the orthodontist.
Group. So you know as we focus on growing in the future. We tend to think alright, how do we take care of how do we take advantage of our digital assets and how do we really look at expanding in places that are.
Our not necessarily tied to kind of the traditional orthodontia model.
Okay, and then just lastly, any thoughts on just the capital equipment appetite as we think about the back half of the urban and think about enterprise scan on Prem Prime now can you just talk on to what degree you think there there could be pent up demand in any need on your part could be a little bit more flexible in terms of financing.
While pricing potentially.
It's been interesting Tiger woods, even before the pandemic hit we were really beginning to ship to one.
Theory of one visit dentistry.
And with Prime mill and the speed of Prime mill. It really made that a reality I mean, you can get.
Patients in and out with a single unit Crown in one hour plus.
So we had made that shift and it was interesting in April when everything went down we really shifted to a bunch of digital.
Whether it was debt product demonstrations or kind of taking people through what one visit dentistry really means we got a pretty good reception. So what we've seen.
To date, and you've actually seen the results that there's a pretty good appetite.
In our mind for technology and equipment now whether its spread.
Across you know are we going to see treatment centers and are we going to see imaging not sure, but we feel very good about prime scan and prime mill and the opportunity for Dennis who are basically going to be dealing with a patient population that may be a little bit hey, I do I want to go to the dentist three times in during the past.
Endemic to get a crown fixed or can I get that done one time, you're also seeing a lot of Dennis that we've been talking to when we've been seeing a fair amount of success.
With saying, Hey, look I got to change, how we practice and they use the kind of the downtime during the pandemic to think through that so we're.
We feel good about where we are from a technology and equipment space in the back half and a large part it's due to the first the new products, we pushed out but also the change in messaging and how were pitching the pitching these products. So ultimately and look we're working with our dealer partners globally right now to to make sure that were helping Dennis access this material.
Yeah, but were twice do I see a whole bunch of pricing pressure and.
Crazy financing options coming on our technology and equipment no.
Okay. Thank you.
Thanks Tyco.
Thank you and our next question comes from Stephen Valley CAC with Barclays. Please go ahead.
Yes.
Great. Thanks, good morning, everybody so.
Couple of quick questions for you know first your comment around July being fairly flat year over year on a global basis is obviously, a pretty positive I know you don't want to give any specific guidance, but just kind of eyeball on the street consensus estimates for the third quarter.
They call for revenues to be down some 20% to 25% year over year. So I'm just wondering based on what Youre seeing in July and barring any other major changes in the landscape. This that and that's at a number that seems like maybe that's too conservative on the revenue outlook as far as where consensus is just curious to get your thoughts around that.
Good morning, Jorge here on listen it is.
It is early for us too.
Be able to extrapolate.
From the July numbers and as the as you can appreciate there is a lot of five different data points coming from a different regions and now there are some markets are doing much better in terms of the number of offices are open markets. There are good from a volume perspective, we still have lingering concerns.
In places like strongly up parts of Latin America, and there are some spots in Europe that are also skilled challenging so and it is very hard to make a judgment with respect to up to those numbers I think what we aren't what we're really encouraged by the fact that sequentially. The last three months have in.
Moving to the right direction, but from a planning perspective internally. We are we're trying to we continue to work with scenario planning we are preparing the company for for a multiple aceto thought of outcomes in the next thought in the next few months in quarters, I think as a prudent thing to do so hard to tell.
You if that number is right or not.
Okay. That's helpful. One other quick clarification question on the exiting of the traditional orthodontics and parts of the analog lab business now these businesses that could be monetized through asset sales or are these just full shutdowns, maybe just give us a little more color around the decision tree on shutdown versus asset sale.
Yes, Steve.
You know as we look at right now, we're making the announcement to get it done obviously, we'll look to dispose the assets in the way that this most beneficial to the company if theres some asset sales, we'll certainly look at it if it's a full shutdown. We we gave you guys. The numbers based on the worst case scenario and obviously, we're going to.
Work to improve that.
The opportunity to do better than what we said.
Okay, Alright appreciate extra caller <unk>.
Thanks steep.
Thank you. Our next question is Michael Cherney with Bank of America. Please go ahead.
Good morning, and thanks for the questions I wanted to just diet back into the July commentary, specifically I apologize to keep harping on this but I just want to make sure. It's as clear as possible. Yeah, Alright, Jorge are you, saying that what you I've seen so far in July on a total dollar basis.
Cross the book is similar 2019 is there any way specifically just to think about how that's factoring into the U S. In particular in terms of the the the quantity of dollar basis versus somebody other growth rates were there might be some countries that did not have any meaningful cobot spikes that could be growing clearly at a faster could.
Yeah, Michael Thanks for the question.
We are still trying to digest all the July numbers, there's a lot of a lot of data to look add from a frog perspective from a geography perspective as I as I indicated before July definitely trying to better than June so that that that that is very good.
But it is it depends on the region it depends on the on the geography and I visit.
And on the products.
This point I can't give you a breakdown because there was some some analytics that we <unk>, we still need to do.
Overall.
The total portfolio.
Is getting closer to 19 numbers and in some instances.
He did better than than 2019.
And and that is definitely a substantial improvement versus versus June.
Okay, and then just one more question on a liners. How do you think about differentiation strategy that you're gonna go forward with I know a lot of it was tied historically to the integration you had with the cabin in with Sir I can and everything and as you think about where you compete.
You know every aligner seems to have its own specific angle and what makes it better where do you think that sure smile Ashake out is what makes it better the best or what X Ray from office differentiate the name of everyone else.
Yeah, Thanks, Michael I I would say that's our system.
Look between omni in prime scan.
Think we've got a pretty good installed base.
We have a very loyal user group there that is looking to practice at the highest level of their license. So when we can add something that's integrated and seamless like sure smile into <unk> into the package and particularly when we came out with sure smiles seven six.
And it's really seamlessly integrated into our base digital assets. It it becomes really easy to use and we feel was seven six you know where now able to compete across the board broad portfolio get class 123.
We think that are treatment planning software is second Tonight, I mean, we feel it really really competitive and we're very comfortable with the clinical results were seeing and as we go into.
Kind of our installed base, we feel very good about that right now and look every single day.
We get better and better at beginning to think about dense by sirona not as individual product companies, where we're sitting there, saying hey, we're going to go sell you Menominee, we're going to go sell your prime and then Oh by the way maybe next week somebody will come in with sure Smile No. It's really we began to focus much more on how do we focus on the customer as one company and.
As part of that one company approach stuff like D. S. One.
<unk> excuse me.
Really are going in and saying Hey look how do you think about using these digital assets too.
Make life easier around doing orthodontics with clear liners, how do you really think about implants differently and again, we're working hard to actually bring this idea that that where the dental solutions company to reality.
Does that answer your question Sir.
Yeah.
Yeah.
Oh, no it's still here. Thanks, thanks for the color.
Thank you and our next question Oh Fountain, Jason <unk> with the address on that please can I help.
Good morning, Thanks for taking the questions here.
Jorge Thanks for all the restructuring client color.
I wanted to new orthodontic business, sending you you've mentioned here a few times leveraging this eric install base with clear Whiners.
It makes a ton of sense, but I mean should we interpret your Sarah comments to be that you're you're going to be emphasizing sure smile, principally and then J P channel or do you have a strategy to continue to target do you want Mcdonalds channel that doesn't have that same Sarah Connor base.
Yeah.
Look we we're happy to take your smile into the Orthodontists office and the G. P office, what we're seeing is again, we want to play to our strengths and we do have a large installed base and when we do programs like one D. S.
We're obviously trying to package.
Workflows together in such a way that there's real benefit to the dentist, we're seeing more success. There. So look we will continue to pitch.
Sure Smile across both the orthodontics orthodontic as well as the G P channel.
We think we've got more in a advantages in the G. P channel right now.
That's helpful. Okay, and then I wanted to ask actually a new product question here, that's partially related to that prior question. So I appreciate its policy here not to discuss new products before they're officially launched but instead of talking specifically to the recently approved large field that you imaging system or.
Maybe any three D printing plans you might have a prime print maybe you could talk to what you're seeing the mark from an opportunity or demand perspective for each of those categories. Each of large show the view and also an office or any burning thanks [noise].
On Whitefield view filling a gap in our portfolio.
We took us a little while to get there, but we feel very good about that right now and if you look at what we've done with.
S. L. L line and now what field view, we feel that we're very competitive and the imaging space and.
Now in terms of where do we think about the macro demand for imaging equipment again.
If you look over the last six months and again the pandemic really started.
At the end of the first quarter and we've seen regions begin to recover we've seen good solid demand across the board and technology and equipment and.
When you start looking at things like wide field view, it's really not necessarily about I'm, just replacing my X Ray machinery, it's what procedures do I want to do and Whitefield view and particularly when you start looking at two D. In three D.
Kind of imaging products and let you do more procedures I'll, let you do better implants, and let you do better and let you be do better orthodontia. So.
We think that demand.
Is it going to gyrate, a little bit as we recover from the pilot pandemic.
Could but we've seen demand remained pre solid on there and in terms of printing, we haven't really discuss that and you know look or one of the challenges in.
In this space.
S. As other med device spaces, where you can really put your pipeline out.
We tend to play things pretty close to the best what I would tell you is that our new product portfolio work has been one of we kept saying in the prepared remarks, we stayed focused on her key strategic initiatives well one of those is new products and.
What we've been working on internally is how do we take the five to 10, most important products, whether that's in the window implant or in the technology and equipment space and keep making progress on it and we.
We're not backing off on what we think our lunch schedule is on some of those major launch launches and again, we think of position as well as people come out of the pandemic.
Alright, thanks, very much Jasmine.
Thanks, Jason.
Okay. Our next question S. Elisabet Anderson with Evercore police car Huh.
Hi, My name guys I also cause wondering if we could help us put some numbers around the new author strategy.
Can you talk about the law <unk> you know maybe some comments about how do you still volume's Chan was there north of Dawn text and then also or anything you can talk about in terms of the size of the revenue base in <unk> and our grocery it would be helpful. Just in terms of framing that opportunity I'm Gonna go for a basis. Thank you.
Yeah, Thanks, a lot, but it's funny, we haven't broken out.
The total orthodontia business and we don't give the clear liner number specifically what I would tell you is that.
What we've seen over the last year is accelerating growth behind sure smile.
And we've seen actually very positive trends, even coming out of the pandemic. So that's one of the reasons, we feel very comfortable about that decision.
We feel that.
Plus thrown has an opportunity to become a solid number two in the space and we're going to work toward that so you can do some math around that look ultimately.
We've been pretty consistent saying, we want to grow and we wanted to do margin accretions. So the steps, we're taking around getting out of the traditional ortho business I'm really focusing on clear liners helps us do that so.
Bet and belief is that the clear liner space is going to be a significant contributor to our aggregate growth rate over time.
Okay perfect. That's helpful. And then you know given obviously you guys have a pretty substantial liquidity possession right now how do you see that playing out a few instead of a shame that yeah. Hopefully it works for you the worst of covert and things continue to improve from here.
Yeah, Good morning, listen R capital deployment philosophies.
Are not change and have not changed I think it was absolutely the right thing to raise more liquidity too.
BNA pulsation of of strength from our financial standpoint.
We were encouraged actually by a number of shareholders to be in that position, which we totally agree with at this point we want to.
Keep doing what we're doing and being very prudent with our balance sheet.
Very diligent with our cash flow.
Notice in the in the second quarter, we had a very strong operating cash flow very good free cash flow and.
All of our parts of our deployment.
Are not changing for now we paid paid our dividend and we have no plans to change that David and at this time.
One side things go back to to a more normal level.
Reassess, where we are at that point, we will look at all of the the.
Demands four capital opportunities that we have at that time and that will make out what are the stations. We think are in the best interest of our shareholders as we deploy died capital.
But for now I think the the focuses on on the recovery is how to ensure that we have a very stable financial pulsation.
How we were able to find a strategic initiatives some of what would shot Don has to talk about that.
Want to make sure that even in a low revenue environment and low profitability environment. We keep funding those initiatives and that is one of the reasons. We have thought we have that that that capital we want to keep investing in the organic growth of the company for that time being.
Okay. Thank you very much that's helpful.
I suppose but.
Thank you and next question it sounds good <unk> Oh, great Ketchup. Please go ahead.
Hi, good morning, and and thanks for the time here I wanted as one very specific question on the one kind of Big picture question. The specific one is actually about Germany I Wonder if you know to what extent you'd be willing to talk about growth in Germany operating conditions there.
And and to what extent you think that's a good barometer for you know what the business might look like over the next several months in the event that we yeah. We can get the virus under under control and then I have a follow up on strategy after that.
Yeah. Thanks, Steve.
Yeah and conditions in Germany, or or if you were gonna go around the world are pretty good.
Again, I think where he said it well it depends on the business and.
There's been different reactions to different different businesses, and we kind of look at Doc together, which is Germany, Switzerland in Austria.
But but conditions there if if that's a harbinger of the future.
Would tell you that.
Things do get closer to normal I mean, there's obviously again the same things we see over here that we keep tracking is what's the office capacity around the new infection protocols and again that keeps getting better.
Things are better in July then they weren't June just as the.
Dennis and their staff get more used to that and then patient attitudes.
It's interesting the patient tracking that we did in Germany showed that.
From a patient perspective, there was less change in Germany, then there was in the U S around the pandemic. So there seems to be a little bit more of a stable attitude toward visiting the dentist's office. So ultimately if things looked like Germany at points to the fact that things do get back to normal.
Okay. Much appreciate it and then.
I wanted to borrow from from your experience a little bit if I could <unk>, you're you're a med tech guy.
And you came into dental with a different perspective on you know what the industry could be in you know how businesses could run and covered has certainly changed some of that thinking I Wonder if you <unk> you keep your med Tech had on and you think about what you want the business to look like and you know how practice evolves.
You know over the next you know, however, many quarters or or months and we get to the point, where you know we're in a news post Kobe normal how is your thinking how how's your thinking involved in terms of what you want the business to be what you think the practice it looks like I know you have a focus on digital.
That was there before can you just give us a sense for maybe what you might have learned in the last few months and how you were thinking has evolved on that future strategic vision. Thank you.
[noise] Thanks, Steve.
I think what Covid has done is brought into sharper focus what I think.
The industry is going to need to be in you know whether it gets there in two years three years five years.
I think it's going to accelerate a couple of trends I mean, the first is that.
I think dsos are going to pick up I don't think it's going to happen in the immediate short term, but I think.
If you look at in Europe, and the U S and even places in Asia Pacific, where the pandemic exposed.
Sometimes some of the offices are kind of right on the margin in the dentist may feel it's better to practice in a larger groups. So I think.
You may see a shift that way.
I think the second big thing is.
The idea of when you say digital I pushed digital pretty hard.
In my mind, what I think whether it's the dsos of the individual Dennis are gonna be doing is there really going to be evaluating their practice more critically and I think covid brought that into sharp focus that hey look I've got 40 hours to see patients how on my allocating time against procedures.
And how am I thinking about what procedures can I do and what procedures do I really want to develop within the practice and I'm going to I'm going to address that accordingly from the equipment and where I emphasize.
Our training and whatnot so.
I think what we've seen with clear liners is something that's going to go into the rest of dentistry. When you think about implants.
When you think about even basic and they'll work I think the increased digitization of diagnostics and how that can help.
Dennis practice at the highest level of their licenses.
It's going to accelerate so I would I would say steep.
I don't think anything's dramatically changed strategically what I think it's.
And you read all the books and after major disruptions in dislocations you tend to see new trends go I think what might have taken a decade, because dental tends to be a little bit slower than what what we saw in med Tech.
Think is going to accelerate pretty dramatically.
I couldn't agree more thanks for all the the help here.
Alright, thanks, Steve they say.
Thank you and next question, what's John Krager, William Blair. Please correct.
Alright, thanks very much.
Done curious could you give us an update on the integration efforts.
I'm sure Cove, it has impacted them a little bit, but you had a pretty long list across commercial manufacturing and R&D, just kind of give us a sense about where that stands and to what degree the pandemic has kind of altered the thinking around them.
John first thanks for the question.
I would say when we outlined things in November of 18, we kind of said it was a three year program.
I would say that.
And particularly with the announcements we made this morning around traditional ortho an analog lab.
It kind of points of the fact that we're pushing a little bit faster and we're pushing harder I think the pandemic has accelerated are thinking and.
Look when you when you see the revenue challenges and the second quarter. It also highlights some of the things that we need to get after even faster. So that's kind of what I would tell you.
I I, it's really interesting internally.
Keep trying to tell people hey look it's not as if we're gonna get the restructuring done and then that's it we're not changing ever again, so I've been trying to condition. The organization to understand that this is a marathon and.
Restructuring might have have been only the first 10-K of that.
So it look I would tell you in terms of the plan we'd laid out.
More than halfway done.
But I would also tell ya.
Great as I brought a new team with people like Jorge we've got a terrific supply chain liter. We've actually now got all the commercial people reporting into one <unk> one person Walter Peterson.
We're finding more and more stuff that we think that we can.
Improve on that should have.
Really deliver the promise of what dance plus aroma should be so.
Specifically.
If you thought it was a three year restructuring.
Slightly ahead of where we thought we would be I would just tell you that our management team is committed to as soon as we get done that restructuring, we're not stopping where how do we continuously improve.
That's great. Thanks, and then one last one how is your implant portfolio performing how did it doing the second quarter and are you rethinking that lineup at all.
Implants, we've been happy with our implant business I would tell you when you say the second quarter. John It's it's an interesting challenge in terms of what language do you use implants did well relative but you know versus prior year.
Across the whole portfolio was challenging.
As we talk and think rethink about our portfolio.
Look we think we started to actually get our new products, where we need to get them. You know obviously, we've talked about our immediate load Astree V product and I think that's the first of what you'll see a pretty.
Regular set of introductions over the next 18 months in our in our implant space that are going to really let us be competitive. The other thing that we've been doing with implants that you know it doesn't get a lot of highlight is we have a business mif's that we had bought a coupla years back which lets us play.
Aggressively in the values segment and.
As we've been rethinking how we approach.
Our commercial go to market strategy across all of them's pleasure and including on implants being able to integrate that and expand that beyond the base of what they used to operate and when we bought them has has been beneficial there. So we feel that implants remains a significant growth opportunity for us I would say that.
Starting to get the portfolio, where we need to get it.
Extremely.
Excited about what I think the new products and that space are gonna be able to deliver for us all over the next.
A couple of years.
Sounds good thank you.
<unk> Alright next question Oh come to town Black with no Salt. Please go ahead.
Hi, This is Trevor off for John Thanks for taking my questions. So I think you'd mentioned earlier that your patient tracking is saying that.
Patient confidence has been continuing to go up recently I'm wondering if there's any details you can give their on just like how that shaken out geographically and if there's a read through to potentially some of your July comments through that confidence level.
Yeah sure. Thanks, Trevor a couple of things I mean, first we're doing patient tracking across the entire globe.
And again, we've seen consistent improvement.
And.
Likely to visit the dentist and we measured likely to visit [noise].
The next 30 days, the next quarter and whatnot. So we've been seeing consistent improvement across the board. There interestingly, there's a kind of a subgroup people have been to the dentist have had really positive experiences around how people whether it's.
Adjusting waiting room or how they're addressing infection protocols. So we see that group is pretty positive one of the things we were trying to watch as they were kind of the flare ups in the U S. In particular geography's, whether there was going to be a drop off in patient confidence and we didn't see that so.
Look.
And by the way.
Most of the patient data is good there is some reluctance on kind of a segment of the population to say you know am I going to go back in the next month versus do I intend to go back to the dentist in the next six months. So there's a little bit of of lag there that we see particularly in the U S. But we don't see it.
Elsewhere around the world So patient patient tracking has been actually a good lead indicator and again, we're seeing.
We're seeing some good positive things there.
Got it. Thank you and then just one more on Dsos. We've been hearing that you said, it's been a large black skirt, Sir Kenneth perform better interest environment I'm just wondering if.
That's it you've been seeing and if you think that some of the smaller more fragmented practitioner should get started with light ketchup as well.
To be honest sure, but we haven't seen a a huge differentiation between the dsos and the individual practices. The thing that we love about this market is that the weather.
600000, Dennis around the World and there are independent business owners and a lot of them are very very inventive and creative about how they go after and make sure that they're reaching out to their patients and whatnot. So I I looked do I think on the margin if somebody was considering <unk>.
Tiring in a year or two and Cove. It hit do they sit there and say now maybe at the time that accelerate that yeah, you might see a little bit of that but we haven't seen a a sharp.
<unk> in the number of dental practices that we're doing business with and.
We haven't seen a drop off in the aggregate number of dental practices in key regions post Cove. It. So when we were watching when we say things are 80% opened 90 per cent opened 99, we haven't seen the.
The number of practices that we're measuring that against change.
Great. Thank you so much.
Thanks traveling.
Thank you NY and with that way complaint zero nine person for today I would like to turn to call back to John Sweeney for his finally night.
Thank you very much everybody. We look forward to updating you as we move through the rest of the year have a good day.
Thank you, ladies and gentlemen for participating in today's program and your main Mount disconnect and have a great day.
[music].