Dentsply Sirona Second Quarter 2020
August 6, 2020
1
Forward-Looking Statements and Associated Risks
Information the Companyhas included in this press release, and information which maybe contained or incorporated by referen ce in filings with the U. S. Securities
and Exchange Commission (the "SEC") as well as other press releases or other public statements, contains or maycontain forwa rd-looking statements. These forward-looking statements include, among other things, statements about the Company's restructuring initiatives and their expec ted impact, and other plans,
objectives, expectations (financial or otherwise) or intentions.
The Company's forward-looking statements involve risks and uncertainties. Actual results maydiffer significantlyfrom those pro jected or suggested in any forward- looking statements. The Companydoes not undertake any obligation to release publiclyany revisions to such forward -looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Any number of factors cou ld cause the Company's actual results to differ materiallyfrom those contemplated byany forward-looking statements, including, but not limited to, the risks associated with the following:
- the effects of the COVID-19 outbreak and the adverse impact on the Company's business, financial condition, results of operation s and cash flows, including, but not limited to, the Company's growth, operating costs, customer demand for products and industrydemand generally, margins, a nd it's abilityto access capital markets, and the global economyand financial markets generally;
- the effects of the COVID-19 outbreak, and the current economic environment generally, on the Company's working capital, cash flo ws and liquidity;
- the Company's abilityto execute key strategic activities due to competing priorities and strategies of its distribution partners and other factors
- the Company's abilityto protect its technologyinfrastructure from cyber-attacks and other disruptions
- the Company's abilityto maintain effective internal controls during periods of restructuring and organizational changes
- a significant failure or disruption in service within the Company's operations or the operations of key distributors
- the Company's abilityto attract and retain talented employees, or to manage succession and retention for its key executives
- the Company's abilityto successfullyimplement its cost reduction and restructuring plans
- the Company's abilityto regain profitability in a very competitive marketplace, which depends upon the Company's abilityto differentiate its products and services from those of competitors
- results in pending and future litigation, investigations or other proceedings which could subject the Companyto significant monetarydamages or penalties and/or require it to change its business practices, or the costs incurred in connection with such proceedings
- other risks described from time to time in the Company's filings with the SEC
You should carefullyconsider these and other relevant factors, including those risk factors in Part I, Item 1A, "Risk Factor s" in the Company's most recent Form 10-
K, in Part II, Item 1A, "Risk Factors" in the Company's subsequent Form 10 -Qs, and information which maybe contained in the Com pany's other filings with the SEC, when reviewing any forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should
not consider either the foregoing list, or the risks identified in the Company's SEC filings, to be a complete discussion of all potential risks or uncertainties associated
with an investment in the company.
2
Non-GAAP Financial Measures
Non-GAAP Financial Measures
The Company defines "organic sales" as the increase or decrease in net sales excluding: (1) net sales from acquired and div ested businesses recorded prior to the first anniversary of the acquisition or divestiture, (2) net sales attributable to discontinued product lines in both the current and prior year periods, and (3) the
impact of foreign currency translation, which is calculated by comparing current-period sales to prior-period sales, with both periods converted to the U.S. dollar rate at local currency foreign exchange rates for each month of the prior period.
The "organic sales" measure is not calculated in accordance with accounting principles generally accepted in
the United States ("US GAAP"); therefore, this item represents a Non-GAAP measure. This Non-GAAP measure may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Organic sales is
an important internal measure for the Company. The Company's senior management receives a monthly analy sis of operating results that includes organic sales. The performance of the Company is measured on this metric along with other performance metrics.
The Company discloses organic sales to allow investors to evaluate the performance of the Company's
operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company. The Company believes that this information is helpful in understanding underlying net sales trends.
Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Diluted Common Share
In addition to reporting net income (loss) attributable to Dentsply Sirona and earnings (loss) per diluted common share in accordance with US GAAP, the Company provides adjusted net income (loss) and adjusted
earnings (loss) per diluted common share ("adjusted EPS") measures. The Company defines "adjusted net
income (loss)" as net income (loss) attributable to Dentsply Sirona excluding certain items as noted below. Adjusted EPS is calculated by dividing adjusted net income (loss) by diluted common shares outstanding.
The adjusted net income (loss) attributable to Dentsply Sirona consists of net income (loss) attributable to Dentsply Sirona adjusted to exclude the following:
- Business combination related costs and fair value adjustments. These adjustments include costs related to integrating and consummating mergers and recently acquired businesses, as well as costs, gains and losses related to the disposal of businesses or significant product lines. In addition, this category includes the roll off to the consolidated statements of operations of fair value adjustments related to business combinations, except for amortization expense noted below. These items are irregular in timing and as such may not be indicative of past and future performance of the Company and are therefore excluded to allow investors to better understand underlying operating trends.
-
Restructuring program related costs and other costs. These adjustments include costs related to the implementation of restructuring initiatives as well as certain other costs. These costs can include, but are not limited to, severance costs, facility closure costs, lease and contract termination costs, related professional serv ice costs, duplicate facility and labor costs associated with specific restructuring initiatives, as well as legal settlements and impairments of assets. These items are irregular in timing, amount and impact to the
Company's financial performance. As such, these items may not be indicative of past and future performance of the Company and are therefore excluded for the purpose of understanding underlying operating trends. - Amortization of purchased intangible assets. This adjustment excludes the periodic amortization expense related to purchased intangible assets. Amortization expense has been excluded from adjusted net income
attributable to Dentsply Sirona to allow investors to evaluate and understand operating trends excluding these large non-cash charges. - Credit risk and fair value adjustments. These adjustments include both the cost and income impacts of adjustments in certain assets and liabilities including the Company's pension obligations, that are recorded through net income which are due solely to the changes in fair value and credit risk. These items can be
v ariable and driven more by market conditions than the Company's operating performance. As such, these items may not be indicative of past and future performance of the Company and therefore are excluded for comparability purposes.
- Income tax related adjustments. These adjustments include both income tax expenses and income tax benefits that are representative of income tax adjustments mostly related to prior periods, as well as the final settlement of income tax audits, and discrete tax items resulting from the implementation of restructuring initiatives and the
v esting and exercise of employee share-based compensation. These adjustments are irregular in timing and amount and may significantly impact the Company's operating performance. As such, these items may not be indicative of past and future performance of the Company and therefore are excluded for comparability purposes.
The "adjusted net income (loss)" and "adjusted EPS" measures are not calculated in accordance with accounting
principles generally accepted in the United States; therefore, these items represent Non-GAAP measures. These Non-GAAP measures may differ from those used by other companies and should not be considered in isolation
f rom, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Income tax
related adjustments may include the impact to adjust the interim effective income tax rate to the expected annual ef fective tax rate.
Both adjusted net income (loss) and adjusted EPS are important internal measures for the Company. The Company's senior management receives a monthly analysis of operating results that includes adjusted net income
(loss) and adjusted EPS. The performance of the Company is measured on these metrics along with other perf ormance metrics.
The Company discloses adjusted net income (loss) and adjusted EPS to allow investors to evaluate the
perf ormance of the Company's operations exclusive of certain items that impact the comparability of results from
period to period and may not be indicative of past or future performance of the normal operations of the Company and certain large non-cash charges related to intangible assets either purchased or acquired through a business combination. The Company believes that this information is helpful in understanding underlying operating trends and cash f low generation.
Adjusted Operating Income (Loss) and Margin
In addition to reporting operating income (loss) in accordance with US GAAP, the Company provides adjusted operating income (loss) and margin. The Company defines "adjusted operating income (loss)" as operating income
(loss) in accordance with US GAAP excluding certain items noted above which are excluded on a pre-tax basis to arriv e at adjusted operating income (loss), a Non-GAAP measure. The adjusted operating margin is calculated by div iding adjusted operating income (loss) by net sales.
The "adjusted operating income (loss)" and "adjusted operating margin" measures are not calculated in accordance with accounting principles generally accepted in the United States; therefore, these items represent Non-GAAP measures. These Non-GAAP measures may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with
US GAAP.
Both adjusted operating income (loss) and adjusted operating margin are important internal measures for the Company. The Company's senior management receives a monthly analysis of operating results that includes adjusted operating income (loss) and margin. The performance of the Company is measured on these metrics along with the adjusted net income (loss) and adjusted EPS metrics noted above as well as other performance metrics.
The Company discloses adjusted operating income (loss) and margin to allow investors to evaluate the
perf ormance of the Company's operations exclusive of certain items that impact the comparability of results from
period to period and may not be indicative of past or future performance of the normal operations of the Company and certain large non-cash charges related to intangible assets either purchased or acquired through a business combination. The Company believes that this information is helpful in understanding underlying operating trends and cash f low generation.
3
Second Quarter 2020 - Agenda
Introduction | John Sweeney | VP IR |
Overview | Don Casey | CEO |
Financials & Outlook | Jorge Gomez | EVP & CFO |
Operating Update | Don Casey | CEO |
Q & A | ||
4
Overview
Don Casey
Chief Executive Officer
5
Summary Observations
- The global pandemic has brought many challenges for the dental industry
- Focused on employee safety & meeting the needs of the customer
- Strong balance sheet & cash position
- Restructuring plan to grow revenues, expand margins & simplify the organization
- Signs of improvement in demand
6
Q2 20 - Summary Performance
Q2 20 | Q2 20 | Q2 20 | ||
Net Sales | Organic Sales | Non-GAAP EPS | ||
$490.6M | (49.9%) | ($0.18) | ||
(-51.4% YOY, with a 1.0% | ||||
negative currency impact) | ||||
Q2 20 Non-GAAP
OI Margin
(8.6%)
(down 2,860 bps YOY)
Cash Flow From
Operations
$175.1M
7
Financials & Outlook
Jorge Gomez
EVP & Chief Financial Officer
8
Q2 20 - Financial Summary - Non-GAAP
In Millions of USD
Net Sales
Organic Sales %
Gross Profit
Gross Profit %
Total SG&A Expenses
SG&A %
Operating Income / (loss)
Operating Income / (loss)%
Net Income / (loss)
Non-GAAP EPS
Q2 20 | Q2 19 | |||
$ | 490.6 | $ | 1,009.4 | |
206.5 | 582.1 | |||
42.1% | 57.7% | |||
248.8 | 380.3 | |||
50.7% | 37.7% | |||
($42.3) | 201.8 | |||
(8.6%) | 20.0% |
($ 40.2) $ 147.9
($ | 0.18) | $ | 0.66 | |
% chg.
(51.4%)
(49.9%)
(64.5%)
(1,560) bps
(34.6%)
(1,300) bps
NM
(2,860) bps
(127%)
(127%)
9
Q2 20 - Consumables Segment
Net Sales $M
$451
187
Q219 Q220
- Net sales of $186.7M, down 58.6% YoY
- Currency negatively impacted sales by 0.9%
- Consumables organic sales declined 57.7%. Key drivers of the decline in organic sales were lower sales of Endodontic, Restorative and Preventive products.
- Consumables operating income margin was -9.4% vs. 27.0% in the prior year driven by the lower level of net sales
10
Q2 20 - Technologies & Equipment
Net Sales $M
$558
$304
Q219 Q220
- Net sales of $303.9M, down 45.6% vs prior year
- Currency negatively impacted net sales by 1.0%
- Acquisitions / divestitures / discontinued products reduced revenue growth by 1.0%
- Organic sales declined 43.6%. Equipment & Instruments, Digital Dentistry & Implants posted a similar level of declines in Q220
- T&E operating income margin was -1.3%, vs. 17.2% in the prior year quarter, driven by the lower level of net sales
11
Q2 20 - Net Sales by Region ($M)
$330
$131
Q219Q220
U.S. Net Sales - (27% of total)
- Net sales declined 60.3%
- M&A/disc. products negatively impacted sales by 0.3%
- Organic sales down 60.0%.
$422
$215
Q219Q220
$258
$144
Q219 Q220
Europe Net Sales - (44% of total)
- Net sales declined 49.0%
- M&A/disc. products negatively impacted sales by 1.0%
- Foreign exchange negatively impacted sales by 1.1%
- Organic sales down 46.9%
Rest of World Net Sales - (29% of total)
- Net sales declined 44.0%
- M&A/disc. products negatively impacted sales by 0.1%
- Foreign exchange positively impacted sales by 2.0%
- Organic sales down 41.9%
12
Q2 20 Cash Flow
($ in millions) | Q2 20 | Q2 19 | % | 1H 20 | 1H 19 | % |
Cash Flow From Operations | $175 | $145 | 20.7% | $164 | $174 | (5.7%) |
Less: Capital Expenditures | $13 | $27 | (51.9%) | $39 | $64 | (39.1%) |
Free Cash Flow | $162 | $118 | 37.3% | $125 | $110 | 13.6% |
13
Significant Actions Taken to Reduce Q2 20 Expenses
- Aligned level of production to meet lower level of demand
- Cost reduction actions drove SG&A down 35% vs. prior year
- Utilized short time work in Europe, furloughs in the U.S.
- Significant compensation reductions
- Reduced discretionary commercial spending
14
Outlook
15
Operating Update
Don Casey
Chief Executive Officer
16
Our Strategy & Vision
Take advantage of the unique global breadth and depth of Dentsply Sirona to create more meaningful solutions for dentists built around innovative products and differentiated clinical education.
Grow | Improve | Simplify the | ||
Revenues | Margins | Organization | ||
17
Shaping the Portfolio
Continue to evaluate portfolio
shaping opportunities
- Underperforming businesses (revenue and operating income)
- Non-corebusinesses
- FONA
- SICAT
- Surgical portion of the Wellspect business
- 1-800Dentist
- Traditional Ortho
- Analog Lab
18
Near-Term Focus
- Restructuring Program - Continue to execute and expand the restructuring plan to deliver $250M in annual cost savings.
- Key Growth Initiatives - Take advantage of the current focus on single visit dentistry and the industry shift towards digital dentistry. Ensure the R&D engine delivers attractive new products that lay the foundation for future revenue growth.
- Key Financial Objectives - Enhance revenue growth, manage costs to drive margin expansion. Maintain investment grade rating.
19
Conclusion
- COVID continues to impact the industry
- We have the right plan in place
- Remain focused on growing revenues, expanding margins & simplifying the business
- Signs of improvement in demand
- Our financial strength, broad portfolio & global reach position the company to succeed and win
20
Appendix
21
Reconciliation of Non-GAAP Financial Measures
Net Sales Q2 20
(unaudited)
Three Months Ended June 30, 2020 | Q2 2020 Growth | Three Months Ended June 30, 2019 | |||||||||||||
(in millions, except percentages) | US | Europe | ROW | Total | US | Europe | ROW | Total | US | Europe | ROW | Total | |||
Net sales | $ 130.9 | $ 215.3 | $ 144.4 | $ 490.6 | (60.3%) | (49.0%) | (44.0%) | (51.4%) | $ 329.5 | $ 422.0 | $ 257.9 | $1,009.4 | |||
Foreign exchange impact | 0.0%) | (1.1%) | (2.0%) | (1.0%) | |||||||||||
Acquisitions and divestitures | (0.3%) | (0.9%) | (0.1%) | (0.4%) | |||||||||||
Discontinued products | 0.0% | (0.1%) | 0.0%) | (0.1%) | |||||||||||
Organic sales | (60.0%) | (46.9%) | (41.9%) | (49.9%) |
Three Months Ended June 30, 2020 | Q2 2020 Growth | Three Months Ended June 30, 2019 | |||||||||||||||||||
Technologies | Consumables | Total | Technologies | Consumables | Total | Technologies | Consumables | Total | |||||||||||||
(in millions, except percentages) | & Equipment | & Equipment | & Equipment | ||||||||||||||||||
Net sales | |||||||||||||||||||||
$ | 303.9 | $ | 186.7 | $ | 490.6 | (45.6%) | (58.6%) | (51.4%) | $ | 558.4 | $ | 451.0 | $ | 1,009.4 | |||||||
Foreign exchange impact | (1.0%) | ||||||||||||||||||||
(1.0%) | (0.9%) | ||||||||||||||||||||
Acquisitions and divestitures | (0.9%) | 0.0% | (0.4%) | ||||||||||||||||||
Discontinued products | (0.1%) | ||||||||||||||||||||
(0.1%) | 0.0% | ||||||||||||||||||||
Organic sales | (43.6%) | (57.7%) | (49.9%) |
22
Reconciliation of Non-GAAP Financial Measures
Consolidated Statements of Operations Q2 20
(unaudited)
GAAP | ADJUSTED | |||||||||||
NON-GAAP | ||||||||||||
Restructuring | Business | |||||||||||
Amortization | Program | Combination | ||||||||||
Three Months | of Purchased | Related Costs | Related Costs | Credit Risk | Tax Impact of | Income Tax | Total Non- | Three Months | ||||
Ended June | Intangible | and Other | and Fair Value | and Fair Value | Non-GAAP | Related | GAAP | Ended June | ||||
(in millions, except percentages) | 30, 2020 | Assets | Costs | Adjustments | Adjustments | Adjustments | Adjustments | Adjustments | 30, 2020 | |||
GROSS PROFIT | $ | 176.1 | 28.7 | |||||||||
0.4 | 1.3 | - | - | - | $ | 30.4 | $ | 206.5 | ||||
% OF NET SALES | 35.9% | 42.1% | ||||||||||
SG&A EXPENSES | 279.1 | (17.9) | (12.2) | (0.2) | - | - | - | (30.3) | 248.8 | |||
% OF NET SALES | 56.9% | - | 50.7% | |||||||||
RESTRUCTURING AND OTHER COSTS | 1.3 | - | (1.3) | - | - | - | - | (1.3) | - | |||
(LOSS) INCOME FROM OPERATIONS | (104.3) | 46.6 | 13.9 | 1.5 | - | - | - | 62.0 | (42.3) | |||
% OF NET SALES | (21.3%) | (8.6%) | ||||||||||
NET INTEREST AND OTHER EXPENSE | 15.6 | - | 0.1 | - | (1.9) | - | - | (1.8) | 13.8 | |||
PRE-TAX (LOSS) INCOME | (119.9) | 46.6 | 13.8 | 1.5 | 1.9 | - | - | 63.8 | (56.1) | |||
INCOME TAXES | (24.0) | - | - | - | - | 17.1 | (8.5) | 8.6 | (15.4) | |||
% OF PRE-TAX LOSS | 20.0% | 27.5% | ||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NON- | ||||||||||||
CONTROLLING INTERESTS | (0.5) | - | (0.5) | |||||||||
NET (LOSS) INCOME ATTRIBUTABLE TO DENTSPLY | $ | (95.4) | $ | 55.2 | $ | (40.2) | ||||||
SIRONA | ||||||||||||
% OF NET SALES | (19.4%) | (8.2%) | ||||||||||
EARNINGS PER SHARE - DILUTED | $ | (0.44) | $ | 0.26 | $ | (0.18) | ||||||
Weighed average common shares outstanding used in calculating diluted GAAP net loss per common share | 218.7 | |||||||||||
Weighted average common shares outstanding used in calculating diluted Non-GAAP net loss per common share | 218.7 | |||||||||||
23
Reconciliation of Non-GAAP Financial Measures
Consolidated Statements of Operations Q2 19
(unaudited)
GAAP | ADJUSTED | ||||||||||||
NON-GAAP | |||||||||||||
Restructuring | Business | ||||||||||||
Amortization | Program | Combination | |||||||||||
Three Months | of Purchased | Related Costs | Related Costs | Credit Risk | Tax Impact of | Income Tax | Total Non- | Three Months | |||||
Ended June | Intangible | and Other | and Fair Value | and Fair Value | Non-GAAP | Related | GAAP | Ended June | |||||
(in millions, except percentages) | 30, 2019 | Assets | Costs (a) | Adjustments | Adjustments | Adjustments | Adjustments | Adjustments | 30, 2019 | ||||
GROSS PROFIT | $ | 540.8 | 28.8 | 11.0 | 1.5 | - | - | - | 41.3 | $ | 582.1 | ||
% OF NET SALES | 53.6% | - | 57.7% | ||||||||||
SG&A EXPENSES | 430.9 | (18.5) | (31.8) | (0.3) | - | - | - | (50.6) | 380.3 | ||||
% OF NET SALES | 42.7% | - | 37.7% | ||||||||||
RESTRUCTURING AND OTHER COSTS | 42.4 | - | (42.4) | - | - | - | - | (42.4) | - | ||||
INCOME FROM OPERATIONS | 67.5 | 47.3 | 85.2 | 1.8 | - | - | - | 134.3 | 201.8 | ||||
% OF NET SALES | 6.7% | 20.0% | |||||||||||
NET INTEREST AND OTHER EXPENSE | 19.9 | - | (14.5) | (0.2) | (1.3) | - | - | (16.0) | 3.9 | ||||
PRE-TAX INCOME | 47.6 | 47.3 | 99.7 | 2.0 | 1.3 | - | - | 150.3 | 197.9 | ||||
INCOME TAXES | 11.2 | - | - | - | - | 38.0 | 0.8 | 38.8 | 50.0 | ||||
% OF PRE-TAX INCOME | 23.5% | 25.3% | |||||||||||
NET INCOME ATTRIBUTABLE TO DENTSPLY | $ | 36.4 | $ | 111.5 | $ | 147.9 | |||||||
SIRONA | |||||||||||||
% OF NET SALES | 3.6% | 14.7% | |||||||||||
EARNINGS PER SHARE - DILUTED | $ | 0.16 | $ | 0.50 | $ | 0.66 | |||||||
(a) Severance costs related to the Chief Financial Officer and Chief Human Resources Office of $11.0 million are included within this item. |
24
Attachments
- Original document
- Permalink
Disclaimer
Dentsply Sirona Inc. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 August 2020 10:18:18 UTC