Q4 2022 DENTSPLY SIRONA Inc Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the fourth quarter 2022 Denseply Sirona earnings conference call.
Speaker 2: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear message advising your hand is raised. To withdraw the question, please press star 1-1 again. Also, be advised that today's conference is being recorded. I would now like to hand the conference over to Andrea Daley, Vice President Investor Relations. Please go ahead. Thank you, Carmen, and good morning, everyone. Welcome to our fourth quarter 2022 earnings call. Joining me for today's call is Simon Campion, Dents by Sirona's Chief Executive Officer, and Glenn Coleman, Chief Financial Officer.
Speaker 3: I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investors section of our website at www.denspiceherona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recently filed form 10K and any updating information in subsequent SEC filing lists some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks will be based on non- GAAP financial results. We believe that non- GAAP financial measures 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 gap and non-gap results.
Speaker 4: And with that, I would now like to turn the call over to Simon. Thank you, Andrea. And thank you all for joining us this morning for our Q4 2022 earnings tour. Today, I'll start by providing an overview of our recent performance and the transformation work we have underway. Glen will cover Q4 and 2022 financial results and also share our 2023 outlook. And then I will finish by providing a strategic operating update. Starting on slide five, we were pleased to close out 2022 with results much better than expected, exceeding the high end of our prior outlook across key financial metrics. Having led this organization for five months now, I'm energized by the momentum we have and confidence that while the macro environment remains challenging, the difficult work we are doing now will aid our ability to navigate its success. We are already seeing the fruits of our efforts with early quick wins, such as renewed interest from and with DSOs. While we can't get into the details, it gives us confidence in the progress that we are already making. You may have heard that we recently announced our organizational restructuring plan to improve operational performance, to increase alignment, to drive process and discipline, and to begin to position dense by surrounded for improved future performance. We committed to act with urgency and I feel we are doing just that. We are moving deliberately from discovery to action, and we are confidence at this plan and other initiatives will collectively improve performance to deliver long-term shareholder value. Moving to slide six, let me take a few minutes to explain the changes we are making. We are putting into place a new operating model which will enable the company to better deliver on our strategic objectives.
Speaker 4: while also focusing on our tone at the top. That focus is on inclusivity, transparency, and importantly, ethics and compliance. The plan consists of the following elements. Number one, reducing the global workforce by approximately eight to 10% while continuing to invest in the global commercial organizations. Number two, implementation of five global business units reporting into one leader. The global business units have designed to drive enterprise integration, align our product portfolio to the company's growth strategy, and the drive seamless communication with our commercial teams. Number three, commence in the central functions and infrastructure optimization to support the efficiency of the overall organization. Number four, hiring a new leader of quality and regulatory to fit on the leadership team, thus elevating the availability and importance of this critical function within the organization.
Speaker 4: Number five, simplification of management structure to bring the company in line with industry best practices. And number six, delivering cost savings to fund critical investments in 2023 and beyond to position the company for sustainable future growth. At sunrise on slide seven, the expect to achieve at least 200 million in annual cost savings over the next 18 months. And as outlined already, reduce the global workforce by up to 10% of the total employee base, but we are not targeting our sales teams. We believe that this plan, along with other actions we have underway, will set dense place a road on the right path to deliver better and more consistent results and in turn create significant value for all of our stakeholders.
Speaker 4: The members of the leadership team have undertaken such work in their respective paths, so this experience coupled with the partnership of external firms who bring an independent view industry benchmarking and best practice is benefiting this work. This transformational work is particularly difficult when actions impact our team and therefore we have not taken these decisions lightly. We are very talented and pleased and the leadership team is confident that the changes we are making will unite to the organization with better position than by sororona for long-term sustainable success. Importantly we are becoming a more inclusive organization focused on creating and fostering a culture of authenticity, compliance and accountability. This starts with having leaders at the top who will provide the right tone and foster the right culture and I feel that this change in tone within the organization is beginning to resonate with our employees. The most recent northern American Salesforce engagement survey for example highlights meaningful arguably significant improvement across the board. In addition to the positive employee momentum we are also seeing you with our customers globally by leveraging the strength of our clinical education programs. We recently hosted our first ever DS World Dubai with more than 800 registered attendees from 47 countries.
Speaker 4: This was our fourth CS World event in the last six months and enabled us to interact with more than 7,000 dental professionals. Before I turn it over to Glenn to discuss the financial performance, let me reiterate that we want to be a company that fulfills our commitments internally and externally. And I feel that the increased engagement we are seeing internally and externally is helping us establish a pathway to be that company. Thank you, Simon. Good morning. And thank you all for joining us. Today I'll cover several topics including our fourth quarter and full year 2022 results as well as our outlook for 2023. Overall, we seated at the high end of our revenue operating margin and adjusted EPS outlook ranges that we provided in November and believe this is an important early milestone as we move forward. So let's begin on Friday 9. Fourth quarter revenue was $983 million, which represented a decline of 10.9% on a reported basis versus the prior year largely impacted by foreign currency and a stronger US dollar. Organic sales decreased by 2.6%, but if exclude China, sales grew 0.4%. So, quenchally, organic revenue moved 5.8% versus Q3.
Speaker 5: This quarter was the second quarter in a row with double digit growth in this part of our business.
Speaker 5: Sure, Smile continues to benefit from regional expansion, particularly in Europe , and new product offerings. Our Director Consumer Aligner brand BITE also saw a very strong growth despite slowing consumer spending trends as we're seeing improvement in customer conversion rates. Our CAD can't business also return to growth in Q4 driven by strong demand in Japan and Korea. Equipment and Instruments business declined by low single digits in the quarter driven by softening demand and ongoing supply chain constraints. Implants were down double digits versus the prior year quarter to the stock demand in China as well as in the US and Europe . We did see some positives in parts of our implants business as value implants showed year-over-year growth. Moving to the consumables segment.
Speaker 5: Organic failed declined primarily due to lower volume in China. These headwinds are partially on step by modest price increases in recent product launches, including pro-taper-ultimate and steric blocks, and growth in restorative and preventative products. Excluding China, the consumable segment grew approximately 1% organically over the prior year of fourth quarter. Now let's turn to slide 11 to discuss fourth quarter financial performance by region. US failed for $369 million, representing an organic sales decline of 1.7%. Driven by lower volume in cat cam, implants, and lab consumables. These headwinds are partially on step by strong growth in aligners. While cat cam volume is down in the quarter, dealer inventory levels were also reduced by $30 million sequentially. Turning to Europe , sales of $376 million were down 3.2% on an organic basis.
Speaker 5: due to lower implants and equipment volume. We attribute this office and equipment to continue supply constraints, as well as a weaker retail demand environment. Rest of world sales for 238 million dollars and down 3% on an organic basis versus the prior year. In China, as expected, we experienced lower sales across product groups due to COVID shutdowns, as well as headwinds and implants due to the impact of VDT. Excluding China, rest of world organic sales had a very strong quarter and grew double digits. When we did fly 12, let me now cover our full year 2022 performance. In 2022, sales were 3.9 billion dollars, representing an organic sale decline at 0.5%. Sales in the year were significantly impacted by foreign currency headwinds, supply chain constraints, and regional softness in China and the US.
Speaker 5: with the US decline largely due to reductions in CAD, CAM, dealer, inventory. The Spices headwinds we are pleased by our performance in Europe , which grew 3% on an organic basis, and rest of the world excluding China, which grew 10%. Notably, our global aligners business, which is a key growth area for the company, grew nearly 10% over the prior year. Operating margin for the full year was 16.8%, which exceeded our outlook of margin greater than 15%. As compared to full year 2021, operating margin could track the 350 basis points due to lower volume, unfavorable mix, inflation, and foreign exchange headwinds, which was partially offset by price. For the full year, foreign exchange headwinds impacted operating margin by 100 basis points. We delivered full year EPS of $2.09 or $2.44 excluding the impact of a VACS compared to $2.82 in the prior year. The company continues to maintain a strong balance sheet and finished the year with $365 million of cash and cash equivalent on hand, with a net debt to EBITDA ratio of approximately 2.1 times. For the year, we returned approximately 70% of pre-cash flow to shareholders through the combination of dividends and share repurchases. And today, we announced a 12% increase to our dividend. This represents three consecutive years of double-digit increases to the dividend and signifies our confidence in our long-term plans. With that, let's now move to slide 14 to discuss our expectations for 2023. Overall, we're reviewing 2020 free of the transition year. Significant work is underway to improve the company and fix the internal issues.
Speaker 5: structure and processes that have hindered recent results, and this work will position the company to drive significant shareholder value when the external environment improves. With that said, we have a credible plan for 2023 that includes cost savings and much needed investments to create and sustain long-term profitable growth in the business. For the full year 2023, we expect organic sales to be in the range of down 1% to up 2%. To represent a net sales range of 3.85 billion to 3.95 billion dollars. Based on current rates, FX will be a 100 basis point headwind to full year net sales. On an FX neutral basis, we expect the cadence of sales to be fairly balanced over the year, with sales slightly larger in the second half of the year as compared to the first half. We anticipate that demand will remain strong and key strategic growth areas. Aligners will continue to benefit from regional expansion and market share gains, and we expect better performance in implants. We also anticipate enough lift from our recently launched CAD CAM products, including Prime Print, DS Core, and Prime Scan Connect.
Speaker 5: will remain cautious on overall equipment to man. Turning to regional dynamics, we expect to see an improvement in the two geographies that were our challenge in 2022, the U.S. and China. In Q4, we made critical investments to our U.S. commercial team, which will continue in the first half of 2023. We also enhanced our commission plans to incentivize growth and address the higher CAD-CAM dealer inventory levels. We expect that these actions will neighbor our U.S. business to return to growth in 2023, starting in the first quarter. In China, we expect fails will be flat in an organic basis after a year of significant decline in 2022, but we remain cautious on the demand outlook as significant near-term uncertainty remains.
Speaker 5: Additionally, VBP will be a top-line headwind due to the 40% price impact we will see in our China implants business. While many uncertainties remain, we are seeing positive signs of recovery. For example, this week our China commercial team participated in an in-person dental trade show with 50,000 dental professionals in attendance. As we move forward in 2023, we will be using even a margin as the primary profitability measure to track our operational performance and better align with our peers.
Speaker 5: For 2023, we expect our EBIT margin to be greater than 18%, which is a decline of 140 basis points from the prior year, but above our fourth quarter run rate of 17.4%. We expect the Jeff and Ernest per share to be in a range of $1.80 to $2 on a full year basis. Let's turn this by 15 to discuss the puts and takes in our 2023 EPS outlook. Overall, we anticipate that the Jeff and EPS will decline from $2.09 in 2022 to $1.90 in 2023 at the midpoint of our outlook range.
Speaker 5: Quad savings from the restructuring plans are expected to accelerate starting in the second quarter, contributing approximately 30 cents of EPS in 2023, but the full run rate achieved by mid-2024. So you anticipate a sequential moderation in raw material inflation throughout 2023, but remain at elevated levels. We will also have a portion of the inflation with price increases, which will net to a 20 cent headwind to earnings. Other items, namely FX and interest, will net to a 4 cent headwind to EPS. This brings up the EPS of $2.15 of six cents versus the prior year, excluding the impact of investments.
Speaker 5: We will be making commercial investments and undertaking long overdue integration activities in 2023. These investments are expected to impact EPS by 25 cents. On slide 16, we'll cover the risks and opportunities we see in our outlook. Our outlook is based on our most recent view of the digital market and economy today. Overall, we see 2023 as having a healthy balance of risks and opportunities that could enable outperformance. The largest variable to our outlook is the overall health of the economy. Similar to last year, the external environment remains challenging and uncertainty is high. While demand has been largely stable today, we believe that recessionary concerns, rising interest rates, and high inflation could lead to a change of consumer behavior, which in turn could cause slowdown in elected procedures and capital equipment purchases.
Speaker 5: Beyond the external environment, key opportunities that could drive out performance relative to our outlook include earlier a greater impact from commercial investments and faster sustained supply chain recovery. On the wrist side, we've knowledge through some risk to the timing on realizing savings associated with our organizational restructuring plan. It is a large scale global program with many variables which we're closely monitoring as we execute.
Speaker 5: Turning to slide 17, we've laid out additional details on our expectations for the first quarter, given the visibility we have at this stage in the quarter. For the first quarter, we expect your year organic sales growth to be approximately 1% driven by continued strong growth in our aligners business and growth in the U.S. loss that by continued headwinds in China, which we expect to gradually improve over the remainder of the year. U.S. organic growth will benefit from easier cost and cat cam and the favorable timing of dealer orders. Entering the year, dealer inventory has returned to much lower levels and will be largely aligned to retail sales going forward.
Speaker 5: Having said that, we do expect dealer CADCAM inventory to increase the quenchally in Q1, and then return to lower levels over the course of the year. We expect the U.S. quarterly performance to be choppy in 2023 with slight growth for the full year. Based on current foreign exchange rates, we anticipate that FX will continue to be a headwind, negatively impacting net sales in the first quarter by approximately $40 million. We expect even margins will be at least 15 percent, and will sequentially improve each quarter as the realization of the restructuring planned savings accelerate, and we begin to see demand recovery in certain regions. Let me now wrap up on slide 18 and quickly touch on capital allocation priorities.
Speaker 5: We plan to continue returning at least 50% of free cash flow to shareholders through dividends, which we've increased three consecutive years, as well as share repurchases. Our capital deployment strategy is predicated on keeping leverage law with flexibility in the balance sheet while maintaining an investment grade credit rating. We have a strong balance sheet, a low leverage ratio, and healthy cash flow generation. At its full year 2023 free cash flow conversion of approximately 80%, which reflects the expected cash outlies to support our restructuring program. Our goal is to improve conversion to 100% once you move past the one-time cash outlies.
Speaker 4: opportunities supported by a solid organization of foundation.
Speaker 4: Our platform was tasked with confirmation that our strategy to transform the industry by digitalizing dental workflows by driving product and service innovation and delivering an exceptional customer and patient experience through an engage in diverse workforce is the right one.
Speaker 4: We are now intently focused on how we will improve on the delivery of the tactical elements of this strategy in a predictable, repeatable, reliable manner to customers, shareholders and employees. Changing to slide 21, we have initiated much of this transformational work, but the heavy lifting is ahead of us. As we embark on this new year, we are focused on five core practical and strategic objectives.
Speaker 4: These objectives are to, number one, deliver on our annual growth and margin commitments that Glenn has just shared. Number two, enhance the sustainability. Number three, accelerate enterprise digitalization. Number four, win in aligners and implants. And number five, create a high performance culture. As we make progress on these objectives, we do so with an eye on fulfilling our commitment to return to industry growth and increase profitability. Turning this light 22, I would like to reiterate the key actions we are taking to achieve these objectives. Today we have provided our 2023 growth and margin outlook.
and we are committed to achieving that plan. We will do so by making meaningful progress on the other four objectives that we have laid out. Notably, we have discussed in detail the organizational changes we have underway to implement a new operating model which will enable us to connect segments and geographies, reallocate capital through the company as needed, and eliminate silos to improve the customer and employee experience. In parallel, we are defining our winning portfolio. The strategic intent of our winning portfolio will focus on the strategic content of our winning portfolio.
on a simple, secure, and connected workflow experience that our dental clinic and lab customers trust for better treatment journeys and patient outcomes. Related to our portfolio shaping work, a topic of much discussion has been the future of our well-spec healthcare business. I can confirm that while no final decisions about the ultimate status of the significant and profitable part of our portfolio have been made, we have received several inbound inquiries about this asset. We feel compelled to investigate such inquiries and have commenced engagements with several interested parties. We will not make any further comments on this matter until we have a definitive conclusion to these discussions. Another key aspect of our winning portfolio involves simplification. We are reviewing the company's product offerings on a skill-level basis to inform the size of actions that can be taken to streamline the portfolio and deliver higher returns. Our early insights indicate that the portfolio is overly complex. For example,
We now know that in our consumable business, 12% of the SKUs generate approximately 95% of our revenue in those categories. This complexity adds significant costs to the business and leads to inefficient use of internal resources across functions. Specifically, in Endo, we have over 9,000 SKUs of different endodantic files with 8% of the SKUs making up 90% of that platform's revenue. While this work is ongoing, we know there is opportunity to simplify and drive improvement in plant and the network efficiencies to unlock further long-term management expansion. These efforts also yield additional benefits, including reducing operational complexity, optimizing inventory, increasing service levels and sales force effectiveness, reducing risk and improving quality. Importantly, we see these benefits with a goal of preserving the associated revenue through disciplined execution and effective customer partnerships. The comprehensive review of our business has served with important areas.
that need strategic investments to drive overdue integration and enable future growth. Key areas for investments include our global fail themes, our IT systems, and in resources to ensure compliance. Many of these investments have already commenced, and we have, for example, made great progress on the U.S. sales force expansion. The vast majority are hired and were recently trained at our North America sales meeting.
Investments in our IT system are necessary to modernize our landscape and further our enterprise integration. While these types of large scale ERP endeavors are typically a multi-year journey requiring large investment, they are critical to the business operating efficiently and most importantly, being able to deliver for customers in an optimal way. They have commenced the process to understand this transformation over the past number of weeks. Compliance is another critically important area. Investing on compliance will support the remediation plan developed in 2022.
Operating with the utmost integrity and in a compliant manner in everything we do is important to us all on the leadership team and on the board. As such, this investment has the complete support of both groups and is underway. We are confident that with these actions and then more normalized market conditions, then place our own a kangaroo revenue at our above our historical long-term targets while also increasing profitability. The combination of these positive factors in conjunction with the significant structural and process changes within our organization can enable that by throwing it back to the level of meaningful earnings improvement expected by the end of 2025.
with the trusted earnings per share of $3 targeted in 2026. Now let me close with a few remarks on flight 23. We end the 2022 on a positive note by exceeding our prior outlook commitments in the fourth quarter. Importantly, there is a sense of positivity within the commercial themes about the future driven by the structural changes, our transparency, and the commission plan changes. 2023 undoubtedly will be a transition year as the re-structuring plan is put into action against a challenging external environment. However, we are confident in our capability to execute it and establish a clear path forward for the organization, its employees, and its investors. We committed to taking decisive action at the end of the year by Serona, and I believe we are not only taking decisive action, but taking the right action to improve the company, to improve the performance.
We want to capitalize on the opportunity that the dental industry affords an organization like ours and believe that this restructuring enables us to drive internal alignment and accountability, simplify and fund critical growth investments. It is essential to achieving our five key objectives and delivering the meaningful earnings improvement that you expect that we expect. We are embarking on this road with confidence in our collective experience with the support of the board and with belief that we can transform this organization. And with that, I will open it up for questions. Somebody will recompile the Q&A roster.
And the first question comes from the line of Kevin Caliando with UVS. Please proceed. Thank you very much. This is actually Dylan Finley on for Kevin Caliando. Congrats on the great quarter, guys. Questions for you kind of on the revenue side. So you put out that $3 EPS target for 2026. Based on some math that we did, assuming some moderate amount of buybacks, and assuming you hit a 20% operating margin. By that time frame, we landed on an average growth rate around, you know, 2.5%. So based on the growth that you're expecting this year, it'll definitely take a little bit. I'm wondering if this is consistent with your own internal assumptions. And if you have any visibility yet.
You know, exiting 2023, where you expect to grab. Thanks. Yeah, no, I think first and foremost, we haven't laid out our revenue expectations long term. We'll do that at an investor day coming up in November . But clearly, we would expect to get back to market growth rates over the coming years as part of our plan. And I would say our expectations are to do above the two and a half to three percent in when you look at two to three years from now. So that would be part of our expectations on how we get to the three dollars. Thank you. Thank you. Next question please. Thank you. One moment please.
All right, any comments from the line of Elisa with Anderson with Evercore ISI? Please proceed. I'm on mute talking to myself, please. Thanks so much for the question, guys. I guess one longer term question and one shorter term question. This is really helpful for the details about some of the strategic investments in the initiatives. And I was wondering how you think about the sort of like cadence and timeline of how some of these new investments translate into sort of maybe new product launches, etc. I know you talked to me about reducing the skew cow, but imagine you also have continued innovation as you pointed out with R&D, etc. maintain. So I guess that would be my first question. And my second question is just sort of on the.
value and monitor progress during the R&D cycle and even into the commercial cycles. You should expect to hear more from us, certainly at Analyst Day or Investor Day on that. And then we respect to investments and I'll use the US commercial team as an example, as I noted in the prepared remarks.
We are well underway. In fact, we're almost complete with that investment on the implant team and on the DSO team. We've already experienced traction as I noted with the DSOs. In relation to the implants, it's a very clinical cell. So we would expect a tail on their training before they begin to deliver meaningful performance in the implant arena in the...
And Elizabeth, on your question around Q1, obviously we're two months now into the quarter. I would say first and foremost, we're much more positive around Q1 than where we were just a few months ago. So the fact that we're talking about putting up organic growth in Q1, I think, is a positive. We do expect to see really strong growth coming out of the fourth portfolio. January was a record month for sure, a smile, which was a pleasant surprise for us. So that momentum is continuing. Cat cam should also have a very strong quarter given where we are at the dealer inventory level.
pretty large headwind still in Q1. We've bottled out right now $40 million based on where rates are currently. On a full-year basis, we expect organic growth to be down 1% to up 2% organically.
Again, about a full point on the top line relative to the FX headwind and EPS of $1.82. I would just say the way we've modeled our full year outlook is expecting a stable environment, patient volumes to be stable. Regionally we've made a number of comments in our prepared remarks around improvements we're expecting in both China and the US, which has been big challenges for us in 2022. So, you know, US should be up on a full year basis, slightly China flat, coming off of a quarter that's going to be down in Q1.
And then Europe should be flat to maybe down slightly and then growth coming out of rest of the world when you're in China and Latin America. So on the whole, that's how we see the regions playing out. And again, if you look at the portfolio, a line or should show really good growth year over year, implants should be improving and CAD can't should be growing. So on the whole, that's how we've laid out our outlook. I would just say an important point I made and I wanted to ensure that everyone heard it is when we look at our top line, we expect on a constant currency basis that the second half of the year will be slightly higher than the first half, which means the year is not back and loaded in terms of the top line. However, for EPS, keep in mind our restructuring savings will not kick in until part of the latter half of the second quarter, which means EPS will be back and loaded. And I would just say, directionally, I bottle about 40% of our full year EPS. In the first half of the year, and 60% in the back half of the year. So hopefully, that gives you a little bit of color around Q1 and our full year outlook.
Europe should be flat to maybe down slightly and then growth coming out of rest of the world when you exclude China and Latin America. So on the whole, that's how we see the regions playing out. And again, if you look at the portfolio, a line or should show really good growth year over year, implant should be improving and CAD can't should be growing. So on the whole, that's how we've laid it out. Look, I would just say an important point I made and I wanted to ensure that everyone heard it is. When we look at our top line, we expect on a constant currency basis that the second half of the year will be slightly higher than the first half, which means the year is not back and loaded in terms of the top line. However, for EPS, keep in mind our restructuring savings will not kick in until part of the latter half of the second quarter, which means EPS will be back and loaded. And I would just say directionally, I bottle about 40% of our full year EPS in the first half of the year and 60% in the back half of the year. So hopefully, that gives you a little bit of color around Q1 and our full year outlook. Thanks for the question. Thanks so much.
Thank you. No moment for our next question. Any comments from the line of Brandon Kuljard with Jeffrey? Please proceed. Hey, thanks for morning. Simon, on the 25th, 26th target, $3.00 ETF, just to help us understand how you got comfortable putting that target out there today, especially right in front of a pretty major restructuring program. Yes, I would say, Brandon, good morning. I would say that, again, we alluded to it in our prepared remarks between the restructuring and a lot of other activities that we have underway, including the ski rationalization and driving plant and network efficiency. We got comfortable with that projection pretty quickly. In fact, we put that out at the JP Morgan meeting in January . We have confidence that we're going to achieve it with all the levers that quite frankly, we do have our disposable disposal to get to it. I don't know if you have any further comments. No, I think the cross side of the equation, you've already seen the actions that we're putting in place to drive us towards that 3DAR EPS number. We'll give more color around the ski work and the impact of that when we get to November . But we have a good quantification of what we think that looks like, including the facility optimization piece. I think a key part of this stuff is getting back to market growth. So we're going to need to see a more normalized macro environment, coupled with new product launches and innovation. And again, we feel confident over the next three to four years. We'll get back to market growth.
coupled with the cost actions that we're taking will drive to a number that's north of three dollars by 2026. And then in terms of the full year organic growth guide, you get any more color between the sub seconds, teeny versus consumables. What is that in debt for net pricing catcher? Thank you. So I think in terms of pricing, the way you laid it out is, you know, low single digit increases. I think it's important to note though that we're being very surgical around where we're increasing pricing. So we're not just doing it across the board. We're doing certain regions in certain parts of the portfolio. And that's a net number. So obviously we're discounting and actually reducing prices in some cases. China being one as an example and also other parts of the port. So on the whole, we're counting on low single digit price tailwinds as we go into 2023. Keep in mind, we will have that two pricing increases in 2022. So we'll get the full year benefit of that. And we have one plan for 2023 at the moment.
So that's how we see pricing. I'm not going to give you the specifics between T&E and confirmals, but obviously we've been very thoughtful in terms of how we've thought about pricing creases. Thanks for the question. Thank you. One moment for our next question, please. And Nick Collins from the line of Nathan Rich with Goldman Sachs, please proceed. Great. Good morning. Thanks for the questions. I had a few on the CAD CAM segment. Can you give a little bit more detail on what drove the growth in CAD CAM in Q4? Given the kind of relative size of the US and the tough comps there, kind of surprised that it was definitely good performance, just be curious what drove that in the quarter. On the inventory changes, could you maybe talk about what you're hearing from the distributors on why there's the volatility in inventory levels? And you said you expect CAD CAM to return to the market.
which is very good, which means.
For every retail dollar of sales, we should see a wholesale dollar or sell, which we didn't see in 2022. So as we move forward now, obviously we should see better performance in CAD CAM in the US. And we're still cautious around the US equipment market. And speaking with our dealers and seeing what's happening in the marketplace, we're still cautious. So I think the fact we've got our dealer inventory levels where they are. We're in Syria.
Being a bit cautious is how we've laid out our guidance for 2023. But keep in mind, we do have some new products that we've launched in the space. We are expecting to see growth overall. And so that's how we've laid out 2023. Simon, did you want to add anything? No, I think you covered that. Next and we're, we're, we're, we're, we're, we're the strong quarter. We've got global execution and, uh, and with our renewed focus on, on the US. Um, yeah, we're, we're comfortable. Thanks a little Barbara. Great. Thank you. Thank you. One moment for our next question, please. Any comments from the line of Jeff Johnson with R W Peer bird?
All right. We have technical issues with his line. Can I move to the next question, please? Do we have the next question? Yes, ma'am. It comes from Erin Wright with Morgan Stanley . Please proceed. Great. Thanks for taking the question. So on the restructuring initiative, I think you alluded to skew count rationalization. Does that have a meaningful impact on sales? And this is something that is embedded in your guidance, both in a near term and longer term perspective and will this be something?
a very thoughtful manner. So we don't expect any changes this year, but the plans will be laid out this year. And you should expect to hear some more granularity at the investor day in November about that. We provided some color in the paper marks about the scale of some of the skew offering that we have and our contribution to revenue. So hopefully that provided you some additional.
color around there. Regarding the divestitures, we obviously considered other parts of our business too, but they are more consistent with our thoughts around being a dental developer and manufacturer and commercial team. So while we looked at a number of different opportunities to rationalize our portfolio, the one that we have received several inbounds about and that we're taking a long close look at right now, is the well-spec healthcare portfolio. There are no plans to do any further ones at the time. And then, Glenn? Yeah, I would just add just to answer your question, the profitability of the well-spec business, it is a creative to our overall orbit average. Thanks.
there. Regarding the divestitures, we obviously consider other parts of our business too, but they are more consistent with our thoughts around being a dental developer and manufacturer and commercial team. While we looked at a number of different opportunities to rationalize our portfolio, the one that we have received several inbounds about, and that we're taking a long close look at right now, is the well-spec healthcare portfolio. There are no plans to do any further ones at the time. And then, Glenn. Yeah, I would just add just to answer your question, the profitability of the well-spec business. It is a creative to our overall orbit average. Thanks. Okay. Thanks.
All right, and we'll all put our next question. Please, one moment. Any comments on the line of Jeff Johnson with R.W. Bear, please proceed. Thank you, good morning, guys. Glenn, maybe I can call up just on that emerging creative comment on Wealthback. We get the EPS contribution annually maybe around 20 cents or so, or we at least in the ballpark there. And I just want to confirm that Wealthback is in guidance in keeping that for the full years part of the current guidance. And I guess one other question tied to that is if you were to get a big cash infusion, whether it was for this reason or any other reason, does that go to pay down debt as it goes as a share by back? Or do you pump that right back into maybe potentially other acquisitions to drive that top line and kind of the dental portfolio going forward? Thank you. Thank you.
Jeff, thanks for the questions. First and foremost, I would say yes, well, respect is included full year in our numbers. And again, we're just at this point evaluating our options around that business. So that business is included in our full year expectations. Obviously, if the business were to be divested, we'd have to think about what to do with those cash proceeds. We're already very low leverage, so that's good news relative to what we could potentially do. But at this point in time, we're not going to lay out any specific plans other than, you know, we would make the most appropriate decisions around how to offset any EPS dilution relative to the transaction. Thank you. Thank you. And then maybe one follow up question if I can just, you know, you talked about adding to the sales force here in a few different areas and trying to increase the commercial has there. You know, I could pick on, I guess, or pick out a couple different areas, whether it's with an equipment. Or orthodontics or implants, but I'll try to narrow down just the implants here. You're a number five player in implants, you know, probably under end.
we do expect that. In relation to our portfolio, as I noted, I think in my response to Elizabeth's question, we are now getting visibility. We now have visibility to where we spend our dollars and what returns we get from them. So to your point about implants, it's a...
We've got products that are meaningful for our customers. I think we've just launched some of our taper products as well, which have resonated with customers as a fair. So I think we're already doing some of the work that you've alluded to. And we will absolutely be.
reinforcing our commitment to appropriate R&D in the appropriate spaces moving forward. Thank you. Thank you. One moment for our next question, please. Any comments from the line of John Block with T-Full please proceed.
Hi guys, this is Tom Stefanant for John . Thanks for the questions. I'll start with 2023 guidance. Go ahead and maybe this is for you. But how should we be thinking about T&E and consumables organic growth? I guess relative to the total company guidance of down one to up two. Um.
between implants or though it sounds like T&E will be the growth engine, but I think it'd be helpful if we could put a finer point on where that may shake out in rough terms. I guess is each segment within the total company range or how should we maybe think about that maybe briefing the high end and low end of it. But actually, Tom, thanks for the question. We're not going to give too much specifics on our segment guidance. I would just say we are expecting T&E to grow faster than conceivals as part of our guidance range, but that's all we're going to comment on at this point in time.
Got it. And then my follow up is just on the restructuring. Simon, you gave some very helpful color throughout the call. But can you maybe talk a bit more about the current restructuring and how it may be different. From the prior ones for the company, I guess what were the learnings from those that you're trying to apply this time around and. You know, maybe what gives you confidence this may potentially be more disrupted than expected. And maybe ultimately have some sort of impact on growth. Thanks. Yeah, thanks. Thanks to the question. So we've been very thoughtful about this restructuring.
You will have hopefully noted that we are not impacting our sell teams at all. In fact, we're net positive on investments in our sales team globally, including Europe and the US. I think the difference is we're here. We're being extremely thoughtful about it. We are driving alignment between our ORCOs, between the regions and the global business units. And we're giving, we are giving the global business unit a single voice.
So, communications is going to be better between the business units and the regions and the decision making and agility is going to be improved because we now have more visibility to all of the financial aspects of it. And we can move money around as appropriate to fund different investments like commercially or R&D or in other spaces like Clan Quality.
and so on and so forth. So I think it's meaningfully different to what was done before. As we noted in the prepared remarks as well, I think the tone at the top is a very material change here as well. And again, in the prepared remarks, we commented on some of the feedback that we've received from the US commercial team in particular where some of those metrics have doubles in the past six months. So we are changing the tone here at the company. We're being transparent. We're being inclusive. We're driving this plan and improving process.
and making investments to make this company a better place to work and a better place to deliver results that you expect and that we expect. Very helpful. Thanks. Thank you. One moment for our next question, please. Any comments from the line of my goal journey with Bank of America, please go ahead. Thank you for taking the question. I'm going to wrap up a bunch of topics I think into one here, but as you think about the trajectory and particularly the build into that $3.26 number, I'm not looking for how you think about the revenue dynamics, but how you think about the mix in terms of.
your focus on going direct versus not going direct. We heard from one of your key distribution partners yesterday, but they're desire to build out their own specialty business. So how's that impact your view of X-rays, go to market strategy, and what you can do to take control of your own destiny versus for line-on-your-distribution partners as you think about this multi-year build? Yeah, thanks for the question, Michael. We value the partnership that we have with our distributors. They have different degrees of meaningfulness to our organization in different regions, certainly in the US. They're very meaningful. And we have begun to build, I think, constructive relationships with them. But there are certain areas, of course, where we have a direct presence, such as implants and the liners. And we do tend to see great growth from those areas. So while, while we have constructive and developing relationships with our distributors.
It is a unique environment within that, within Dental, where your partner and competitors at the same time. So, we are driving that transparency with respect to our thought process with those distributors in the U.S. in particular. Got it. That's good for me. Thank you. Thank you. One moment for our next question. Any comments from the line of Justin Lin with William Blair, please proceed. Hi, good morning. You mentioned you had a record quarter for a sure smile. I guess in your view, what's starting to success beyond improving that?
robust 2022 year and we expect that we'll continue to see good throughout both insure smile and bite in 2023.
Thank you. Gotcha. I guess that kind of leads me to my next follow-up question. If you may, I guess more longer term question around your clear liner strategy. How do you make a more meaningful push into the Orphill channel? That's part of your plan at all. You know, with sort of the other portion of the business being sort of, you know, directly consumer. Yeah, so, you know, Bight has performed very well for us over the past two quarters. We've had a lot of questions on.
meaningful parts of our portfolio, one that were being diligent around expenses on and investing appropriately in driving customer acquisition, customer conversion, and trying to increase customer satisfaction scores and drive the web traffic in that manner. Yeah, I mean, it's bad. I mentioned this in some previous discussions.
Obviously, with Ortha doing much better on the top line, a big part of our margin expansion and improvement story is around the bottom line as well. And our Ortha businesses are becoming more profitable both in sure-smile and in bite. So that's also very encouraging relative to how we think about 2024, 2025, getting to higher operating margins, the EBITDA margins, our Ortha business should be a contributor to that.
It should be a nice tailwind when we go into 2024 for sure. Thanks for the question. Thank you, King. In our last question, one moment please. Any comments from the line of Rachel Bansondal with a JP Morgan Chase, please go ahead.
Great. Hi guys. Thanks for fitting me in. So one to follow up on some of the earlier questions about margin and the P&L guidance for the year. So, you know, there's a fair amount of moving pieces throughout that P&L, but then they're restructuring. So appreciate your comments on EPS being weighed in 40-60 between first half and second half. The P&L give us a color on margin, K to throughout the year.
going from that greater than 15% ETA-DOM margins in 12 to 8 or 18. So the year, what should we really expect from the 4Q exit rate? And then I have a call up as well. Thanks. Yeah, I don't think we want to provide too much more color on margin performance. I would just say Q1 is expected to be the lowest quarter of the year. We say greater than 15% even of margins. Obviously that would imply the back half of the year doing north of 20% even of margins. But Q4 exiting at the highest rate. So I think that's how we've laid it out overall. And again, for a full year, we expect to be greater than 18%.
or even a margin. So I think that's all the color we're going to provide at this point. Thank you, Rachel. And then just a quick follow up just on supply chain. And you're off you guys explained that those constraints continue. So can you just talk about what is assumed from supply chain constraints heading for throughout 2023? Yeah, I think first and foremost, the supply chain constraints really surround electronics and electronic components. It hasn't gotten any worse. It is moving in the right direction, but we still have challenges. But we've assumed this things get a little bit better throughout 2023. I did mention in my rip-off. I prepared remarks. One of the upside possibilities we have in 2023 is seeing a better improvement than what we're modeling. So I think I have modeled.
a pretty conservative view on supply chain and some of the constraints we're dealing with. If it actually is better than our assumptions, it would leave us to a chance to over achieve. So I think we've been pretty conservative how we've laid that out. Thank you. Thank you. And with that, I will conclude the Q&A session and turn the call back to Simon Campion for final remarks. Thank you, Carmen. So in closing today, I would like to reiterate my thanks to the entire Dance By Surona team, including those employees who left recently for their valuable contribution to the organization and their unwavering commitment to our customers. The past year was challenging and the transformational work we have ahead of us will not be easy. However, I am confident that Dance By Surona has a bright future ahead.
We're already making significant progress, which will benefit all stakeholders over the long term from customers to employees to investors. Thank you for your time today. Thank you all. Thank you. And with that, we thank you for your participation and you may now disconnect. The conference will begin shortly.
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