Q3 2021 DENTSPLY SIRONA Inc Earnings Call

November 4, 2021

Good day, everyone and welcome to the Q3 2021, Dentsply Sirona earnings Conference call. At this time all participants are in a listen only mode. Finally management's prepared remarks, we will host a question and answer session and our instructions will be given at that time. If during your conference today you require operator assistance. Please press Star then zero in an opera will be.

Happy to assist you as a reminder, this conference call is being recorded for replay purposes. Now. It is my pleasure to hand, the conference over to Andrea Daily V. P. Investor Relations you May proceed.

Thank you, Brian and good morning, everyone. Welcome to our third quarter 2021 earnings conference call I'd like to remind you that in earnings call press release inside presentation related to the call are available and the investors section of our website at Www Dot then Spicer Ona Dot com before we begin please take a moment to read the forward looking.

Statements and our earnings press release during today's call, we make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties.

Our most recent Form 10-K list some of the most important risk factors that could cause actual results to differ from our predictions and.

In today's conference call remarks will be based on non-GAAP financial results, we believe that non-GAAP financial measures provide investors with useful supplemental information about financial performance of our business enabled a comparison that financial resolved between periods, where certain items may vary independently of business performance and allow for greater transparency with.

Respect the key metrics used by management and operating our business.

Please refer to our press release for the reconciliation between gap and non-GAAP results and with that I'd now like to turn the call over to Dawn Casey Our Chief Executive Officer. Thank you Andrea and thank all of you for joining US this morning for dense plus rooms third quarter earnings call.

Overall, we continue to be pleased with the recovery and the dental market, how we were operating and our prospects for growth in the future.

During this quarter, our top one showed strong growth versus both 2020, and importantly against the Prepandemic level and 20th 19. This growth was seen across most business units and regions.

And looking at the remainder of the year, we have good momentum, but are mindful that the pandemic remains a key variable.

Before we get into the details of the of the quarter I did want to acknowledge the entire Dentsply sirona team.

Throughout the pandemic and now in the recovery phase. They have remained focused on delivering for the customer disciplined and how they operate and committed to making progress against our strategic goals. It is a privilege to be part of this group.

Moving now to slide six.

As I mentioned, our financial performance in the third quarter was quite strong with revenues, reaching $1.069 billion. This represents a robust 21% increase on an organic basis.

Are operating margin was 20.2% versus 22% in the prior year as S. G and a an orange D investments increase to reflect the recovery and the market as well as our commitment to innovation.

Adjusted non-GAAP EPS was 68 cents that is an increase versus 67 cents a year ago cashback.

Cash flow was $172 million for the quarter.

To provide more details around the corner I will now turn the call over to our CFO Jorge Gomez.

Thank you done good morning, and thanks to all of you for joining us to discuss on all our strong quarter and our fiscal year 2021.

As a reminder of my remarks today will be based on non-GAAP financial results and less otherwise noted.

Please refer to the Reconsolidation tables at the back of the press release and slides both of which are posted in the investors section of our website.

And the third quarter, we deliver strong revenue growth across the business in both consumables and T N E.

The business deliver organic revenue growth of 21.1% and reported growth of 19.4%.

Because of the pandemic makes it difficult to gauge growth I want to point out that we also posted robust organic sales growth versus 2019 pre COVID-19 levels.

Compared to the third quarter of 2019 reported sales grew 11.1% and organic sales grew 10.7% driven by growth in both segments and across all regions.

This performance against the 2019 baseline confirms a steady recovery trend we have seen in 2021.

Gross profit was 624 million or 58.4% of sales.

Our margin rate remained steady, reflecting imbalanced contribution from all of our businesses and a more normalised mix.

Looking back we have the liver headwind 50 basis points of gross margin expansion. Since Q3 2019, the pre COVID-19 baseline attributed to portfolio optimization on our efforts to simplify the organization over the last few years.

As you all know the global supply chain environment continues to be a challenge in terms of cost availability of components and labor across industries.

So far we have been able to meet demand at a normal pace and continued to work on various operational strategies to minimize the impact to our customers and to our P&L.

Now turning to SG&A.

In the third quarter, we had expenses of 373 million or 34.9% of sales.

This ratio remains below pre COVID-19 2019 levels, reflecting the benefits from our efficiency improvement initiatives.

Quarter over quarter, SG&A increase as we ramp plan SG&A investments, particularly in sales and marketing to support our growth plans and a strategic areas, including clear aligners implants and digital capabilities.

You three spending an R. N D was app, 31.6% year over year 235 million.

We expected level of increasing investment to continue as we are committed to the liver and innovation and great solutions to our customers.

As a result of the heightened emphasis on R&D over the last few years, we are pleased to see a much healthier solutions pipeline as dawn, we'll discuss later.

Turning now to profitability.

Alternating profit grew to 216 million versus $197 million last year.

Operating margin was 20.2%.

Looking back we have delivered 230 basis points of operating margin expansion since key 320 19, the three coffees baseline.

We have expanded margins and we have also made meaningful investments in our business, which are essential to fund sustainable long term growth initiatives.

Net interest in order expense increased versus last year, mainly due to the impact from foreign exchange fluctuations.

Regarding taxes in the quarter are effective tax rate increase to 23.4% from 20.3% in the prior year quarter, primarily due to the geographic mix of pretax income and our continued business recovery from carpet.

Turning to earnings EPS was 68 cents versus 67 cents in the prior year quarter.

Moving to segment performance.

Versus the third quarter of 2020, consumables and technology and equipment grew 15.9 per cent and 25.3% respectively.

Both segments posted a strong growth across all product categories.

The consumable segment had sales of $440 million and organic increase of 15.9% versus the prior year.

Overall growth was strong across all regions any all categories, most notably within the endo unrest of parts of our portfolio, which represent a strategic priorities for our business.

This quarter, we launch <unk> ultimate the first major Endodontic platform innovation lunch in our endo business in more than five years.

Market reactions, thus far have been very positive.

Additionally, the rebounding to prevent that the business, particularly in the U S continued in Q3.

The consumables Monica has been resilient and our teams are executing well through the recovery.

Currency favorably impacted consumable sales by 1.3% upset by a reduction of 4.8% due to the vet pitchers and discontinued products.

Moving on to technology and equipment segment results.

See any organic sales grew 25.3% versus the prior year with a strong overall girls in all regions and product categories.

Growth was most notably driven by the digital category and influence.

There continues to be a strong momentum on increasing digital capabilities within dental offices.

Demand is high for digital devices, such as Prime Ah such as prime scan and imaging equipment, such as our new accessed unit.

We are seeing a growing trend in dental offices upgrading from two D to three the units and we are up serving this trend in all global markets.

Are clear Aligners franchise drove strong year over year growth this quarter.

The Aligners market continues to grow faster than most categories and the Aligners business is a key contributor to our growth strategy.

In the dentist directed channel sure Smile continues at expansion domestically and internationally.

In addition, the new software. We recently lunch has been positively received by the market due to a significant user experience enhancements.

The upcoming lunch of V pro will be another key differentiator for our church while offering.

As you May recall, when we acquired propel earlier in the year, we indicated our intention to utilize it for sure smile as well.

Sure Smile is on track to meet our run rate goal for the year.

After a very strong first half in 2021, the D. T C channel experienced softness in Q3.

We believe this is largely attributed to copy the recovery dynamics and seasonality.

Given that run right, we're seeing four byte in the second half of this year. There's a possibility we may not fully achieved the annualized run right golf Ford This year.

V. T. C is an exciting new category in the dental industry and bite is a strategically pulsation for growth with its focus on customer experience and key differentiators, such as high provide and high engagement with customers through the entire aligner journey.

Lastly, within T N E currency favorably impacted sales by 1.2% as well as a benefit from acquisitions of seven 7% upset by a reduction of 9.4% due to the best pitchers and discontinued products.

Now I'll turn into financial performance by region during the third quarter.

U S sales were 399 million a growth of 25.3% versus last year.

Organic sales growth was 20.1%.

U S dental sales volumes remain at close to normal levels in both segments. Despite covered variance that spike late and a quarter.

European sales were also a $399 million a growth of 13.6% versus last year organic growth was 17.8%.

Similar to the U S sales and majority of product lines and consumables N T N E I running that pre coffee levels or better.

Rest of the World sales were $271 million a growth of 20.1% versus last year.

Organic sales growth was 27.8%, reflecting recovery in demand across consumables N T any.

The APEC region has delivered continued growth for our business throughout the entire fiscal year 2021.

Next I would like to cover cash flow.

In the third quarter of 2021, we generated operating cashflow Penguins 72 million and free cash flow of Penguin $37 million.

During this quarter, we paid our regular dividend and repaid long term debt of $296 million, which mature in July.

We finished the quarter with cash on hand of $281 million.

Year to date, we have generated 435 million in operating cash flow and $334 million in free cash flow.

On a year to date basis, we have deployed more than $248 million to fund strategic acquisitions, including datum and propel orthodontics.

We have also return a total of 158 million to shareholders through David Lynch and share buybacks.

Our financial position and balance sheet remains strong we are well positioned to continue to deploy capital is strategically.

Now, let me provide an update on our financial expectations for 2021.

Based on the solid performers of our business year to date and the current market trends, we are increasing our estimates for 2021 as follows.

We are tightening our revenue outlook by increasing the bottom of a range. We now expect revenues to be in the 4.25 billion to 4.3 billion range.

With respect to EPS, we're increasing and narrow in our estimates for fiscal year 2021, the new EPS outlook range is now $2.87 to $2.92.

This range is based on a new assumption for the euro to you as the rate of 116.

Is is lower in the fiscal year 21 budget assumption of 122 and lower than last quarter's assumption for the second half of the year of 118.

Given our long you exposure, a weaker euro represents and net headwind toward P&L.

Overall, we are very pleased with the current momentum on our business on our new 2021, I'll look for revenue and earnings reflect that confidence.

To close my remarks, we are proud to share the progress, we're making in our sustainability journey.

As you May remember, we and we indicated a few months ago that we will get that we were taken substantive steps to advance sustainability.

I am happy to report that just a few weeks ago, we share our sustainability strategy with a broad range of stake holders at D. S World.

And also Paul which are 2020 sustainability to report and our 2025 goals.

It is our commitment to be transparent and accountable with respect to our strategy and goals.

Going forward, we will measure our progress within three sustainability vehicles Hell.

Healthy planet healthiest miles and healthy business.

To support our healthy smiles pillar this quarter, we enter into a five year partnership with Smile train and committed 5 million to your organization Smiled train is a non-profit organization that provides corrective surgery for children with cleft lip and palate across the world.

We're excited by the opportunity to help improve or a health for children worldwide.

I encourage you to visit the sustainability hop on our website to check out our metrics and actions with an age of our sustainable sustainability vehicles. We are convinced that our commitment to sustainability will deliver long term value to our stakeholders.

With that I will now turn to call back to done.

Thank you Jorge moving on I wanted to provide some additional perspective around our strategy and priorities going forward.

Moving to slide 17 in the presentation.

Our priorities have remained consistent over the last few years, which has allowed us to stay very focused on delivering consistent results. These.

These pray our priorities are to grow revenues, 4% to 5% longterm through a combination of organic and inorganic activities. The.

The second is to drive our margin to 22% by 2022.

Essential to these efforts is the third priority simplifying the organization to better leverage our scale is one of the largest companies in the dental space.

When we meet these goals, we deliver consistent and sustainable double digit EPS growth.

Moving moving to slide 18 to detail some of the progress we've made against those priorities.

Growth is our overriding priority with the objective being to deliver 4% to 5% topline increases longterm. We've made important progress against the school. In addition to the 21% growth for the quarter year to date, we have delivered an increase of 35.9% versus 2020.

It is also worth noting that for the entire year 2019, the last period prior to the pandemic organic growth was 6.1%.

This kind of performance gives us confidence in our growth strategy and our priorities.

We will keep driving growth by focusing on four areas. They include building on our leading role in digital dentistry accelerating are rapidly growing clearer liner franchise delivering major innovations in critical areas and building out our capabilities and faster growing parts of the world.

Our portfolio moves over the last few years also reflect these priorities and have resulted in increasing our exposure to faster growing areas of the dental markets.

Turning to the next priority around margin expansion.

We are confident that we will deliver the 22% margin goal by the end of 2022.

We are realizing the benefits of a three year restructuring plan as well as portfolio reshaping efforts.

Our team also continues working on simplifying the organization, both structurally as well as how we work.

A great example of this is our comprehensive enterprise modernization program under whore. His leadership that increases the use of automation and digital tools across the company to improve efficiency and the customer experience.

These efforts have helped us deliver significant head count efficiencies and we are on track to deliver the $250 million in savings that we outlined in 2018.

Looking out to the future our strategy outlined on page 19 is develop superior integrated workflows built on diagnostic excellence.

Easy to use treatment planning, an essential products that improve outcomes for patients and dental practices.

On page 20, Dentsply Ciron is impressive digital foundation as outlined it starts with a large global footprint and imaging with major brands like Shick, Orthophosphate Galileo's and our newest addition access.

Our large cirque franchise that includes both chair side and D. I is another critical component in a robust digital foundation.

Is Jorge noted coming out of the pandemic. Both of these digital businesses have strong momentum as Dennis globally are looking to upgrade their practices by.

By adding these more powerful diagnostic tools like prime scan in three D imaging.

They can incorporate more complex procedures into their practice with confidence.

Adding these more sophisticated diagnostic tools also creates an opportunity to take advantage of treatment planning for complex cases, like implants and clear aligners.

Treatment planning helps the Dennis map out the entire procedure this increases their efficiency well elevating their confidence, which can lead to better results for the patients.

Dentsply Ciron is one of the largest providers of treatment planning and all of dentistry with brands like said, Texas, Seric Atlantis, Symplast and sure Smile.

We look at this digital foundation is one of our most important assets in this area as a major investment priority for us These and will drive faster innovation expanded treatment planning capabilities and <unk> accelerated progress in the areas of artificial intelligence.

These efforts. These efforts are now supported by over 500 software engineers within Dentsply Sirona today that are helping us continue leading the digital dental revolution.

Moving to page 21 innovation is our lifeblood and we have delivered several innovations in 2021 and care is like implants and end up at D. S World several of our major innovations were on display.

Rather than just launching products our customers could see our approaches based on simplifying critical workflows from diagnosis to delivering the final treatment in ways that can transform their practices our ability to work across the entire procedure is truly unique to dentsply sirona. The fact that we address so many of the key procedures.

US a real advantage as we look to become the central partner to the practice.

A great example of this was the comprehensive re stage of our implant businesses announced last month.

For us it's not just about launching a new screwing abutment. It is about rethinking the entire implant workflow and bringing all the assets of Dentsply sirona together to help simplify things for the dentist.

It starts with moving to one brand new Dentsply Sirona implants.

It includes adding tools to prime scam that actually allow for an dentulous scanning a real breakthrough while also advancing innovative multi and single tooth replacement capabilities.

It includes a simpler treatment planning refresh and a comprehensive continuing education program to support a digital approach to implants. It allows us to deploy lucid tone to enhance performance of digital dentures, we have a best in class bone growth product with <unk> the.

The team here is also really excited about the launch of Prime taper. This is an immediate load self tapping product that is built off a well known procedure.

The system is launched in the U S and EMEA to excellent initial reviews and this is the kind of integrated innovation across a critical procedure that we believed transforms dentistry.

We're also adding new products to R. M. I S value implant business to continue building momentum and this rapidly growing franchise.

A D S World. We also launched protein for ultimate in the end of Dornick spaces, where he mentioned representing a major innovation in this important therapeutic area, it's more than a file and it includes a great cleaning product as well as a new operation system that includes a new bio ceramic sealant.

Early users of the system, which we call. The trifecta are really excited about the pro taper ultimate system as it simplifies the procedure significantly.

We have also launched a major software upgrade and Sarah called five too as well as sure Smile 76752 is so powerful that it makes prime scan feel like a totally new product and it takes its category, leading speed and accuracy to new levels sure Smile seven dot six makes major progress around our user interface.

This.

We also have a full slate of news for a clearer liner franchise.

As we have two brands, we are maximizing the investment in both R&D and manufacturing by offering the innovations across both the shore smile and the bite businesses.

Innovations in this space include our vibration technology V pro and hyper bite for improved customer.

Moved comfort.

We also are launching new whitening products in the near term.

To finish the discussion around innovation there was major progress in 2021 that will pay dividends going forward I would also note that we have a very robust pipeline going forward that we will bring to the market in the future.

Moving to have the slide 22.

To summarize our strong performance here to date gives us confidence going forward for the remainder of 2021 with good momentum leading into the future Ah results reflect the underlying resilience of the dental market and our teams disciplined performance against our operational goals and progress against our key strategic priorities.

Based on this is where he said we're raising our 21.

<unk> outlook going beyond the quarter to quarter discussion. We also believe that dentsply sirona as well positioned to transform dentistry and deliver sustainable growth going forward and.

And with that we will now open the call to questions.

Thank you at this time, if you would like to ask question over the phone. Please press star and then one on your telephone keypad. If your questions have been answered or you wish to remove yourself from the queue simply press the pound K and to everyone who is participating in the Q&A session. Today, we kindly ask that you. Please limit yourself to one question and one follow up.

And our first question will come from the line of Elizabeth Anderson with Evercore airline is now open.

Hey, guys. Good morning, and thank you so much for the question I was just wondering if you could go into a little bit of detail, perhaps on that TNA segment at what your what your what's implied in your guidance for the fourth quarter I know off of some of the.

The Shine call last week people were tie you had some questions about what revenues forgetting recognized off the D. S World, it's and delays in shipments into the equipment.

Et cetera. So I just wanted an installation so I just want to make sure I'm understanding that portion of it.

Good morning at least.

Thanks for the question Yeah. They what we're seeing 440 any going into the fourth quarter is along the lines of why we said in our prefer remarks, which is we have great momentum there's great demand for prime scan great demand for axes and Imogen in general.

The timing of sales relative to D. As world most of those sales actually happened in.

In the fourth quarter, we there was a lot of great excitement and so in our in our guidance shop for for the fourth quarter.

We are including a substantial growth for for Cat Cam for.

Imogen in general so that the performance and that business that part of the business continues to be strong.

Okay. Thank you that's helpful and maybe just switch over to that clear a liner I know you said that maybe there was a site that if weakness instead of the D. C market can you go in to maybe what you think is driving that and then maybe contrast, it to to how you're seeing sure smile.

Yeah Elizabeth Thank you for the question.

You know the the DTC segment, obviously benefited from the pandemic and as we were kind of entering this recovery phase we're seeing across not just the D. T C clear liner space, but a number of consumer businesses consumers have choices in terms of.

Where they're spending discretionary income and and all of a sudden people are going on vacations and other things.

So we think we're seeing a little bit of seasonality.

And we're seeing some competition.

For discretionary spending among our core target audience.

What we think going forward first is that we think clear liners are clear on their strategy is predicated on look we've got a DTC space and we've DTC entry and we have obviously, a director Dennis entry and we'll look to.

See growth in both of those segments as what we saw in Q3 again.

A little bit of seasonality you know, we think this is a little bit of consumer.

Consumers looking at other discretionary spending.

I would tell you we were obviously when we sit down and prepare all this stuff.

We were reflecting on the fact that in you know basically the second quarter 2018, we had zero sales and clear liners and today we've got.

If it was independent SBU it would be one of our more significant franchises and one that we expect to continue providing a lot of growth.

Into the future.

That's about how and that those comments you said I I know that you focus mostly on on the DTC might get that with your Smile would you say your state with a similar type trends.

Those diverge anywhere.

Now, they're they're a little bit divergent sure Smile continued to if it continues to perform as we thought it's demonstrated very very consistent results were optimistic as we begin to push that outside the U S. And we have made progress doing that that we expect to see continued growth onshore smiled.

The.

The plans for bite are also to begin to pick that up I mean, we're looking at bite and a couple of different ways. You mean, the first is.

We have new products that are coming that direction part one part two is we believe that there's opportunity to expand this outside the U S. We think the D. T C channel and places in Asia. Another other areas is doing pretty well. So we really think that we've got a great product and want to participate in those regions and then yeah one of the things that we.

We remain optimistic about is we really think that by just going to play a role with our relationships with a professional you know obviously when people come into bite not everybody's eligible for bite. They can be referred over to Dennis that we believe that would have prime scanned and other things and go right into short smile. So.

The the bite to us as a strategic play that gives us opportunities to grow with a number of different areas.

Okay Cool that's very helpful. Thank you very much.

Thank you and X X question. Please.

Thank you. Our next question will come from Tyco Peterson with J P. Morgan Your line is now open.

Hey, Thank God I hate to nitpick after being raised quarter, but just following up on last questions. You know he has targets out there for for the clear Aligners $300 million for the year. So where are you training on bite versus that $200 million bite target that you've laid out and having a competitive issue obviously, the dixie channels gotten pretty good.

<unk>.

A couple of things to <unk>, you know, we're not going to give you the exact numbers on on on bite, but it's it's it's a little bit soft I mean, we're not talking [noise].

By a major issue, we want to be as transparent as we possibly can so we're telling you guys. What we're saying we don't think it's a competitive issue, that's where we feel like we're losing ground.

To other entries.

Based on a lot of different things, obviously, we're surveying of the market.

We obviously pulse and watch what's going on with unique visitors. We are process involves somebody coming into the franchise buying a diagnostic kit and then hopefully buying a liner. So we have an opportunity to really talk to people and see.

Where they're departing the funnel.

And at this point, we really don't feel that there is a been a significant change in the momentum of getting people from what kind of the purchasing the diagnostic kit to actually perching purchasing diagnostics, we feel that it's much more of a narrowing of the funnel then losing people to competitors in the funnel.

Okay, and then follow up on supply chain, obviously type of tissue or I I'm. Just curious what you are saying in the channel in terms of inventory levels. You know our our dealers starting to stockpile are you running any shortages are you able to pass on higher shipping costs can you, maybe just give us a little bit of a walk through on what you're seeing on the supply.

I can check right now.

It's like I'll take that question, Yeah as I indicated in my remarks, there are challenges. So far I also said this so far for US we have not been impacted in terms of our ability to our ability to manufacture products or two.

Supply or distributors.

A something that we are monitoring very closely the supply chain team is when a great job because the reality is.

It is harder now to find certain components it is more expensive.

Expensive in some cases to procure certain materials, we have managed all of that so far so with respect to what we're saying in the inventory pipeline or channel. We haven't seen any major disruptions any changes really ah of materials significance at this point, but.

As you know this is a global situation and it's something that is hard to predict at this point, but so far.

We are our financials are not have not been impacted by by the supply in Asia supply chain issues in a material way older than some elevated costs that we have been able to offset or in some cases.

For example, we we.

We did a price increase we announce a price increase effective October 1st some of that helps upset some of the incremental costs that we are facing.

Okay, and then on the cost side is wage inflation and kind of the hiring challenges changed your kind of customer you on automation digitally digitization I mean.

Everyone's having a tough time staffing these days is that kind of driven anymore.

Towards digital and your perspective or is it too early.

No I I think we we think so surely there are shortages of flavor in many many spaces. Many industries in belt dental is one of them staffing issues. As you said in dentist offices are becoming a little bit challenging and all of that motivates our customers to think about ways of improving the automation of the efficiency and they're <unk>.

This is and I think that is not reflected on this strong momentum that we have that we have seen in all of our digital equipment, including needles scanners and through the unit. So I think that is happening I think that that is accelerating that trend and and it's something that is going to really expedite this digital transformation.

<unk> that we have been talking about it for a little while now.

Okay. Thank you.

Alright, thank you.

Question. Please.

Thank you. Our next question will come from the line of John Block with Stifel. Your line is now open.

Hey, guys. This is Tom Stefan on for John Thanks for the questions sorry to belabor this but I want to go back to buy.

Can I just elaborate a bit on the macro headwinds you called out maybe specifically how they look today versus what you saw it in three Q.

Those are those headwinds may be abating, a bit relative to <unk> and then.

<unk> did the Apple I O S changes have any impact.

Results and if so do you believe you're starting to navigate those challenges.

Yeah, I'll I'll answer thank Tom for the question I'll I'll answer the second part first in the first part second.

What the the Apple change, obviously impacts how Facebook and other things are purchased and how we interact with that we one of the reasons. We bought bite was they have a really really good team that is very sophisticated and how we go about creating demand and how we use.

Aspects of like the digital mix, where there's like search engine optimization, whether it's social media, whether it's doing things like affiliates or insurance or other things. So.

We've worked our way through that in terms of what what headwinds are we seeing.

In Q3 that are different than Q too yeah look cute.

Three is vacation time, I mean look you have that are feeling is and we've looked at this and we've talked to a number of our customers or potential customers and people you know we get them in hey look you've spent $20 with us to get the diagnostic Kid why don't you go taken the next step and literally people were talking about well we were <unk>.

<unk>, our first vacation since the pandemic and other things so.

Typically we basically we think there's seasonality associated with.

People going on vacation people heading into school and then.

It is somewhat confounded by what's going on in the kind of the pandemic, where you've got pent up demand for consumer spending in other areas and the thing that we're we're still trying to quantify and we.

We're going to continue to watch it and work through it is obviously there was a change in the.

In the third quarter about government payment related to pandemic recovery thing. So we're working through a bunch of this stuff, but you know.

I I really I think Tyco, just said it well I I do do you want to point out that you know, we just posted them.

Significant growth in the quarter and were raised in one of the things that we look about we have a broad based portfolio and and we think that we're growing and the majority of it we're optimistic that we're gonna grow bite in the future.

Great. That's really helpful. And then just on the 2021 top line guidance the.

The implied four Q. Thanks suggest maybe a modest sequential modest sequential growth.

<unk> sounds like it will be very strong just due to D. S world. So on the other side of that how should we think about consumables.

Are there any puts and takes on the end markets or just in general growth and the trajectory there. Thanks.

Tom I'll take that question I think got the.

He was a good increase from Q3, two Q4 sequentially. So when you do the math I mean that that the.

Sequential growth in flight is.

Several percentage points, probably four to five percentage points. So that that is a that is a good jump. There is specifically with respect to your question about consumables, there's always between quarters, there's always the possibility of timing situations.

Situations and I indicated before we we announced the price increase for October 1st and this is the annual price increase that we normally put in place every time, we do we make these announcements there is probably a movement of revenue.

From month to month or quarter to quarter, and so there's a possibility that there was some acceleration probably not material, but some acceleration of consumable sales from Q4, two Q3 in anticipation of the price increase and there was a couple of other things like that that are timing related but the macro point is there.

Or is sequential growth the organic growth rates that we are <unk>.

Indicating for a total of 2021 I mean, if you'd like if you just look at the range from 22% to 25% and it was closer to 25% organic growth total top line revenue growth versus last year. Those those are strong numbers.

Got it thanks guys.

Thank you Tom.

Next question today.

Thank you and our next question will come from a lot of Jeff Johnson with Bird. Your line is now open.

[noise]. Thank you. Good morning, guys done you sounded pretty optimistic about the implant business in the third quarter that business has the lagging the market.

Would you be interested to hear not just year over year when that business might still been pressured a bit last year, but just how do you feel like you're performing relative to the market in the third quarter. That's ahead of the prime taper launch and just maybe the expectations that over the next several quarters for that business.

Yeah, Jeff. Thanks for the question on an imaging, we had a good quarter and we feel like we've got some pretty good momentum going on and for a number of reasons I mean, I I actually mentioned M. I S. For the first time today. If you look at our values segment, we're seeing good progress there part one part two is you know obviously getting ready.

For the Restage, we had spent a ton of time outwith kols and we feel pretty good that that was starting to have a positive effect too I think we're growing exactly at category I I think we're probably a little bit lighter than the category, but whereas we did the restage we feel very.

Good that we will have an opportunity to you know.

I've always said first we want to grow then we want to grow with the category I think what you saw this quarters were growing and now with the restructuring and restage, we feel confident that we're gonna get you know.

It's not going to happen tomorrow morning, but we feel when the very foreseeable future will be growing at the category level.

Yeah Fair enough and then I guess, we just have to ask I don't bite questions I apologize for that but when thinking about that product line, yeah, you'd probably have at least three or four weeks the visibility I would assume from the time those test kits, you ordered and maybe something convert over to two occasion to revenue.

So you don't just any update on fourth quarter, you've probably got two out of the three months of decent visibility at all that just relative to three killer. We continue to see some sequential stepped down off three two sequential stability versus <unk>, just any kind of color relative that third quarter number would be helpful.

Jeff you know I'm gonna stay away from given numbers for Q4, but but I think we have been pretty transparent with respect to the softness that we saw in Q3 and the fact that because of that softness in Q3, we think there's a chance, we're gonna miss or $200 million goal.

For the year run right for a bite so.

Basically explains what we are seeing right now and and and with like.

Yeah, and her hand I mean.

Just follow up on that I've got you right now it's about a 262 65 million run right off at third quarter, just kind of continued in the fourth quarter.

That at least ballpark kind of how we should be thinking about it.

I think I'd say, it's sure Smile is is very much on track to meet.

Or exceed the 100 million dollar run rates and then yeah bite. This it literally behind so I you know I I think ballpark you probably close.

Fair enough thanks, guys.

[noise]. Thank you.

Next question please.

Thank you and our next question will come from a lot of each had with HC Wainwright.

Your line is now open.

Thank you for taking my question could you tell me about how.

How long do you think the.

These are questioning issue can persist and whether you expect the issue.

T fall both on the manufacturing side of that and I'm Gonna logistics.

Yeah. Thanks for the question good morning.

It's hard to predict how long they supply chain issues are going to last because again. This is not something unique to the dental industry. This this is impacting.

Pretty much all manufacturing industries.

Globally. So we are we are relatively a small piece of that big Big equation. We we are taking a lot of action shop.

To minimize the impact.

Procurement doing a lot of great work trying to identify new sources for certain components we are.

Renegotiating certain contracts, ensuring that we have access to a supply for some key components.

On a predictable basis.

So that's all short term things that we're doing.

I think there are some more long term solutions that are somewhat related to the supply chain issues, but also related to our desire to be more efficient than and improve the margins of our products. So for example, and in many cases, we are harmonizing.

Certain products or components that we were Sars sourcing for from different sources from from multiple sources, where we are now trying to consolidate we're trying to harmonize the design of this component and that should help us improve the reliability of the supply.

And then and then we're trying to make sure that we look at the balance of our might've factor in operations, ensuring that we have thought at the right time, the right components to ensure that the lines are Ah working efficient efficiently predictable periods of time I supposed to Ah stopping and starting based on on not I'm pro.

Towards patterns of supply so there's a lot of a lot of things going on and the as I said before they supply chain team is doing a great job and that's why so far we have not impacted our ability to to to manufacture products.

Got it.

Got your inventory level to increase in coming quarters.

I don't think so no. We we we watch inventory very closely orange internal inventory inventory in the channel and our objective, but all times is to ensure that our manufacturing process is smooth and not the worst thing that you can do for any amount of factoring process is too.

<unk> move inventory levels to drastically from period to period. So our goal at all times is to keep inventory levels.

Relatively stable and are actually long term goal is frankly to decrease days I'll file of inventory and that's a key internal goal, though we track and measure of very closely.

Thank you. Thank you next question please.

Thank you at our next question will come to live Jason bed Dark with Piper Sandler Your night is now open.

Hi, this is screen on vacation thanks for taking the questions. So first I'm sure smell and I guess, the Carolina <unk> business more broadly can you provide from our color on some of your marketing and D. T. C plants here for the remainder of the year in income next year, what level and that I think that that should we expect here.

And if any call either would be helpful.

Sure on shore Smile [noise].

The program that we're running today is about how we see it.

We're looking at pulling some different slightly different leathers ensure smile that will include some D T C but.

From an overall P&L construct nothing radically different about that on bite bite, there's a lot of lovers I mean.

Obviously paid social is is a big deal and we obviously followed it very closely but you know one of the things we've done since acquiring bite is really helping them.

Look at search engine optimization, and how do you do a better job, creating content, that's really meaningful to potential customers. We have a very aggressive affiliate marketing program and we continue to have a a pretty good program aimed at insurers. So as we think about that the level of marketing within bite as we.

Don't expect it to change we you know we've been very disciplined like we're not gonna go Chase unprofitable volume and that's been a key thing for us, but you know the the also the other thing that we're very mindful of we think it's got a really good runway in front of it and let's make it less reliant on a single way paid social and what's <unk>.

<unk>, it's exposure to anybody looking for to do a D. T C clear liner through other means so again within the overall construct of both the clear liner P&L total franchise P&L as well as the individual products, we don't see radical changes coming you know as as this quarter or as we look.

Out over the next couple of years.

Helpful. Thank you and then just one last one for US can you speak to some of the early and perhaps even seen from D. S. Activate I mean I know, it's early but can you share how many deoxidant taken advantage of this program and is there any Paul three that you've already seen so far from it.

Yeah D. S. We've been really happy with D. S activate really happy and and part of D. S. Activate is we.

We actually have people come in and physically attend our Academy and you know you know, it's going well when you can't find a parking place prior to your earnings call because the doctors are all here for for Thursday, activate so without giving you a specific numbers. We believe in that program is principally North America. It's good.

Going well.

Next question please get.

Thank you. Our next question will come from out of Justin Lin with William Blair. Your line is now open.

Hi, good morning.

Question for me said the high end of the organic growth target of 22 22 to 25 per cent you gave for the full year I think implies essentially flat year over year growth in here for it but that is correct. You know just trying to understand that puts and takes here.

Initially thought it might have something to do with a softer a T and a quarter you'll get an early orders pulled into Q3, but that doesn't sound like the case based on what you said earlier, so any color he could get here it would be awesome.

Yeah, just me and thank you for the question I No I I I think or if you go to a 25%.

And have the range actually from a organic growth perspective, the the <unk> the implied growth would be close to 5%.

Okay.

Okay, maybe I just need to check them out there.

And the second question for me it would just be any update on what you're seeing in other regions outside the U S. In terms of patient volume is spelled just trying to think about what you're including in your guidance from the from a geographic perspective. Thanks.

Thank you there's nothing really.

Major to highlight about the original performance Ah older than what I said earlier, which is for example in the third quarter. All all regions perform really really well and we are not.

Seeing any deviation from that call. It continues to be a little bit of a of a shadow there you see a few small markets.

For example, Australia, New Zealand parts of China, where there are lockdowns.

But honestly those lockdowns have not affected our sales in a material way because those markets are small for us so the what our expectation in the fourth quarter from a regional standpoint is a continuation of while we're showing keithley.

[noise] got it thank you.

Next question Luckily.

Thank you. Our next question will come pull out of micro Czerny, where the bank of America. Your line is now open.

Hi, Good morning, this is Alan and for Mike. Thanks for taking the questions I guess going to the operating margin target for 22 or 22% can you talk about some of the swing factors there sort of rank order you mentioned investments in SG&A by the implant rebranding labor supply chain, just how should we think about the the rank order of.

<unk>. Thanks.

Thank you.

I I think there is there there needs to be a good contribution from all areas of the P&L to to reach that goal and we feel good about all of them. So starting with with the top line. We we have certain targets that we that we want to heat and and and we we have been explicit about our four to five person.

Sent target for revenue growth. So that that is an important factor and then keeping a stability from a from a gross margin perspective, we have been trained in very well very stay steady from a gross margin perspective, and then there are further opportunities for cost savings both in Cogs as well as an S.

G&A that we are actively pursuing an and implementing and a lot of them have to do with what we call. Our enterprise modernization program that includes shop crosses harmonization and Centralisation, that's something that that we still have a long ways to go I think there is.

<unk> a tons of opportunities from an automation perspective that should improve our cost base and then.

For their possibilities to optimize our footprint both in terms of.

Uhm manufacturing as well as you know facilities in general I think as we learn how to.

<unk> with the post pandemic or or or new ways of doing business post pandemic I think that there are some interesting ideas to rationalize software footprint as well. So there there is a it sounds I think the last thing I would I would mention is from a product design perspective. The teams continue to do great work trying to.

Improve the cost of materials trying to improve the design show that is cheap.

Cheaper to manufacture and and more efficient overall, so those are all important lever, though we are actively pursuing and when you add add out of them together, that's what we we feel good about the 22% that 22% target.

Great. Thank you very much.

Thank you.

Thank you and our next question will come from the light of Nathan Rich with Goldman Sachs. Your line is now open.

Hi, good morning, Thanks for the questions Uhm, Alright, Hey, maybe a high level of question.

Yeah, there's a lot of the product opportunities I guess.

We think about going forward, how do you think about maybe investing more aggressively to go after some of those opportunities. You know you know obviously also have the kind of the the added dynamic of inflation cost pressures I guess, how does that change how you were thinking about the the historical balance have you seen between reinvesting in the business, but also you know being.

On the path to 22% margins it'd be great to kind of get your sense of kind of how you're thinking about you know that that dynamic as we head into 2022.

Yeah. Thanks that Nathan I don't think are are thinking has changed pretty substantially I think what we are facing right. Now is reinforcing a lot of the beliefs that we had going into a into this pandemic and so that reinforcement is translating into.

You are strong desire to invest more and move faster.

Respect to a lot of ideas that we have in the pipeline and not we Don and I have indicated how we are really proud of fought the increase are in the activity that we have what is coming out of all of that work and and we have we have a number of upgrade ideas that we expect.

Bring to the market.

And then your future and that they are reflective of some of the important macro trends shop digitisation.

Changes in behaviors from from consumers and things like that so I think this is just that again reinforcing the idea is that we had before and they stopped just pushing asked to to move faster and we're really excited about the opportunities frankly, I mean is that there there are great opportunities and we are really excited about stop trying to do this at all of these things faster.

Makes sense <unk>, just a very quick follow up Uhm no have you seen I think he touched on this a little bit earlier, but just wanted to kind of revisit have you seen stock in by the distributors I know, there's a lot of focus on inflation and the price increases that could be coming up do you feel like.

Inventory levels at all has have changed at all with your distribution partners.

We don't think so we track that closely and and we managed shop or inventory levels in a disciplined way and and so.

We are not seeing that at this point.

Great. Thank you.

You're welcome.

Thank you. This concludes our question and answer session for today. So now it's my pleasure hand, the carpets over to Dawn Casey Chief Executive Officer for closing comments and remarks.

Yeah, Thanks, so much and and thanks for all the time you guys gave us saying great questions is always you know look I would summarize by saying we feel really good about a quarter. It's.

Been doing this a long time, it's rare that you get to talk about a 20% plus organic with a beat and raise you know and there's some stuff that we're very very excited about Jeff really appreciated the question on implants, and when when you're seeing double digit implant growth something we haven't seen in a long time are we feel there's tremendous momentum on the <unk> business and consumer.

<unk>, which is a question we typically get we feel that we've innovated across a broad platform. So we feel good about that and you know I I would just pull back a little bit out of the quarter to quarter discussion was almost three years ago to the day, when we announced a restructuring you know basically since then and we feel that we're we're really <unk>.

On track in terms of growth I mean, if you look what we did in 19 and then as we get into this kind of recovery phase of the pandemic.

You know we were hitting the margin targets that we put out we already delivered the headcount we feel very good about the the fact that we've created not only are more simple organization, but one that's much more functional and you know our team in here is really excited about the future for those you guys got to attend D. S World.

You could kind of see how we're laying things out from a procedure perspective, and why we think that applies sirona is really well positioned to become the essential partner in terms of practices all over the world. So I'll close it out and say thank you all and look forward to catching up and some of the one on one sessions.

Thank you everyone. This concludes our webcast in conference call for today you may now disconnect everyone have a good day.

[music].

Good day, everyone and welcome to the Q3 2021 densify Sirona earnings conference call. At this time all participants are in a listen only mode. Following management's prepared remarks, we will host a question and answer session and our instructions will be given at that time. If during your conference that you require operator assistance. Please press Star then zero.

And operator will be happy to assist you as a reminder, this conference call is being recorded for replay purposes. Now. It is my pleasure to hand, the conference over to Andrea Daly VP Investor Relations you May proceed.

Thank you, Brian and good morning, everyone welcome to our third quarter 2021 earnings conference call.

To remind you that an earnings call press release, and slide presentation related to the call are available in the investors section of our website at Www Dot densify Sirona Dot com before we begin please take a moment to read the forward looking statements in our earnings press release during today's call, we make certain predictive statements that reflect our current views about <unk>.

Performance and financial results, we base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions.

In today's conference call remarks will be based on non-GAAP financial results, we believe that non-GAAP financial measures provide investors with useful supplemental information about financial performance of our business enable the comparison of financial results between periods, where certain items may vary independently of business performance and allow for greater transparency with.

Respect to key metrics used by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results and with that I'd now like to turn the call over to Don Casey, Our Chief Executive Officer. Thank you Andrea and thank all of you for joining US this morning for dense supply surrounds third quarter, earning call.

Overall, we continue to be pleased with the recovery in the dental market, how we're operating and our prospects for growth in the future.

During this quarter, our topline showed strong growth versus both 2020, and importantly against the pre pandemic level. In 2019. This growth was seen across most business units and regions.

And looking at the remainder of the year, we have good momentum, but are mindful that the pandemic remains a key variable.

Before we get into the details of the of the quarter I did want to acknowledge the entire <unk> sirona team throughout the pandemic and now in the recovery phase. They have remained focused on delivering for the customer disciplined in how they operate and committed to making progress against our strategic goals. It is a privilege to be part of.

Of this group.

Moving now to slide six.

As I mentioned, our financial performance in the third quarter was quite strong with revenues, reaching $1 billion $69 million. This represents a robust 21% increase on an organic basis, our operating margin was 22% versus 22% in the prior year as SG&A and R&D investments increased.

To reflect a recovery in the market as well as our commitment to innovation.

Adjusted non-GAAP EPS was <unk> 68 cents that is an increase versus 67 a year ago.

Cash flow was $172 million for the quarter.

To provide more details around the quarter I will now turn the call over to our CFO Jorge Gomez.

Thank you dawn.

Good morning, and thanks to all of you for joining us to discuss another strong quarter in our fiscal year 2021.

As a reminder of my remarks today will be based on non-GAAP financial results unless otherwise noted.

Please refer to the reconciliation tables at the back of the press release and slides both of which are posted in the investors section of our website.

In the third quarter, we delivered strong revenue growth across the business in both consumables and see any.

The best way to deliver organic revenue growth of 21, 1% and reported growth of 19, 4%.

Because of the pandemic makes it difficult to gauge growth I want to point out that we also posted robust organic SaaS growth versus 2019 pre COVID-19 levels.

Compared to the third quarter of 2019 reported sales grew 11, 1% and organic sales grew 10, 7% driven by growth in both segments and across all regions.

This performance against the 2019 baseline confirms the steady recovery trend we have seen in 2021.

Gross profit was $624 million or 58, 4% of sales.

Our margin rate remained steady, reflecting a balanced contribution from all of our businesses and a more normalized mix.

Looking back we have the liver headroom 50 basis points of gross margin expansion. Since Q3 2019, the pre COVID-19 baseline attributed to portfolio optimization on our efforts to simplify the organization over the last few years.

As you all know the global supply chain environment continues to be a challenge in terms of cost availability of components and labor across industries. So far we have been able to meet demand at a normal pace and continue to work on various operational strategies to minimize the impact to our customers and towards.

P&L.

Now turning to SG&A.

In the third quarter, we had expenses of 373 million or 34, 9% of sales.

This ratio remains below pre COVID-19 2019 levels, reflecting the benefits from our efficiency improvement initiatives.

Quarter over quarter, SG&A increase as we ramp planned SG&A investments, particularly in sales and marketing to support our growth plans in our strategic areas, including clear aligner implants and digital capabilities.

Q3 spending on R&D was up 31, 6% year over year to $35 million.

We expect this level of increased investment to continue as we are committed to delivering innovation and great solutions to our customers.

As a result of the heightened emphasis on R&D over the last few years. We are pleased to see a much healthier solutions pipeline as Don will discuss later.

Turning now to profitability.

Operating profit grew to $216 million versus $197 million last year.

Operating margin was 22%.

Looking back we have delivered 230 basis points of operating margin expansion since Q3, 2019, a pre COVID-19 baseline.

We have expanded margins and we have also made meaningful investments in our business, which are essential to fund sustainable long term growth initiatives.

Net interest and other expense increased versus last year, mainly due to the impact from foreign exchange fluctuations.

Regarding taxes in the quarter, our effective tax rate increased to 23, 4% from 23% in the prior year quarter, primarily due to the geographic mix of pre tax income and our continued business recovery from Covid.

Turning to earnings EPS was <unk> 68 cents versus <unk> 67 in the prior year quarter.

Moving to segment performance.

Versus the third quarter of 2020 consumables and technologies <unk> equipment grew 15, 9% and 25, 3% respectively.

Both segments posted a strong growth across all product categories.

The consumables segment had sales of 440 million, an organic increase of 15, 9% versus the prior year.

Overall growth was strong across all regions and in all categories, most notably within the endo unrest or parts of our portfolio, which represent our strategic priorities for our business.

This quarter, we launched brought taper ultimate the first major endodontics platform innovation launch in our endo business in more than five years.

Market reaction, thus far have been very positive.

Additionally, the rebounding to prevent that the business, particularly in the U S continued in Q3.

The consumables market has been resilient and our teams are executing well through the recovery.

Currency favorably impacted consumable sales by one 3% offset by a reduction of four 8% due to divestitures and discontinued products.

Moving on to technologies and equipment segment results.

See any organic sales grew 25, 3% versus the prior year with a strong overall growth in all regions and product categories.

Growth was most notably driven by the digital category and implants.

There continues to be a strong momentum on increasing digital capabilities within dental offices.

Demand is high for digital devices, such as <unk>, such as <unk> and imaging equipment, such as our new Axis unit.

We are seeing a growing trend in dental offices upgrading from two D. Two.

Q3, the units and we are observing this trend in all global markets.

Our clear aligner franchise drove strong year over year growth this quarter.

The aligner market continues to grow faster than most categories and the liners business is a key contributor to our growth strategy.

In the dentist directed channel sure Smile continues its expansion domestically and internationally.

In addition, the new software. We recently lunch has been positively received by the market due to its significant user experience enhancements.

The upcoming launch of <unk> pro will be another key differentiator for our church mile offering.

As you May recall, when we acquired propel earlier in the year, we indicated our intention to utilize it for sure is small as well.

Both of 25.3% versus last year organic sales growth was 20.1%.

U S dental sales volumes remain at close to normal levels in both segments. Despite covers variance that spike late in the quarter.

European sales were also a $399 million a growth of 13.6% versus last year organic growth was 17.8%.

Similar to the USA all the majority of product lines and consumables Anthony are running at pre copy levels or better.

Rest of the World sales were $271 million a growth of 21% versus last year.

Organic sales growth was 27.8%, reflecting recovery in demand across consumables N T any.

The APEC region has delivered continued growth for our business throughout the entire fiscal year 2021.

Next I would like to cover cash flow.

In the third quarter of 2021, we generated operating cashflow, Penguin 72 million and free cash flow of $137 million.

During this quarter, we paid our regular dividend and repaid long term debt of $296 million, which mature in July.

We finished the quarter with cash on hand of 281 million.

Year to date, we have generated 435 million in operating cash flow and $334 million in free cash flow.

On a year to date basis, we have deployed more than $248 million to fund strategic acquisitions, including datum and propel orthodontics.

We have also return a total of $158 million to shareholders through dividends and share buybacks.

Our financial position and balance sheet remains strong we are well positioned to continue to deploy capital is strategically.

Now, let me provide an update on our financial expectations for 2021.

Based on the solid performers of our business year to date and the current market trends, we are increasing our estimates for 2021 as follows.

We are tightening our revenue outlook by increasing the bottom of a range. We now expect revenues to be in the 4.25 billion to 4.3 billion range.

With respect to EPS, we're increasing and narrow in our estimates for fiscal year 2021, the new EPS outlook range is now $2.87 to $2.92.

This range is based on a new assumption for the euro to you as the rate of 116.

This is lower in the fiscal year 21 budget assumption of 122 and lower than last quarter's assumption for the second half of the year of 118.

Given our long your exposure a weaker euro represents and net headwind toward P&L.

Overall, we are very pleased with the current momentum on our business on our new 2021 outlook for revenue and earnings reflect that confidence.

To close my remarks, we are proud to share the progress, we're making in our sustainability journey.

As you May remember, we and we indicated a few months ago that we will get that we were taken substantive steps to advance sustainability.

I am happy to report that just a few weeks ago, we share our sustainability strategy with a broad range of stake holders at D. S World.

And also Paul which are 2020 sustainability report and our 2025 goals.

It is our commitment to be transparent and accountable with respect to our strategy and goals.

Going forward, we will measure our progress within three sustainability vehicles.

Healthy planet healthiest miles and healthy business.

To support our healthy smiles pillar this quarter, we enter into a five year partnership with Smile train and committed 5 million to the organization Smile train is a non-profit organization that provides corrective surgery for children with cleft lips and pallets across the world.

We're excited by the opportunity to help improve or a health for children worldwide.

I encourage you to visit the sustainability hop on our website to check out our metrics and actions with an age of a sustainable sustainability vehicles. We are convinced that our commitment to sustainability will deliver long term value to our stakeholders.

With that I will now turn to call back to dawn.

Thank you Jorge moving on I wanted to provide some additional perspective around our strategy and priorities going forward moving.