Good day, and welcome to the Dentsply Sirona Q3 2022 Earnings Conference Call. All participants will be listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. At this time, I would now like to turn the conference over to Mr. Andrea Daley, VP of Investor Relations. Please go ahead.

Good morning everyone. Welcome to our third quarter 2022 earnings call. Joining me for today's call is Simon Campion, Dentsply Sirona’s Chief Executive Officer; and Glenn Coleman, Chief Financial Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investor section of our website at www.dentsplysirona.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 future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties and our most recently filed Form 10-K and any updating information in subsequent SEC filings lists some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures 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 will now turn the call over to Simon.

Thank you, Andrea, and thank you all for joining us this morning for our Q3 2022 earnings call. I am very pleased to be here talking to you all today for the first time as CEO of Dentsply Sirona. Today, I’ll provide you with an overview of the third quarter, Glenn will cover both the quarter’s financial results and provide an update on our 2022 outlook and then I will finish by providing a strategic operating update. Before we jump into those topics, I’d like to make a couple of introductory comments and also provide you with an important update regarding the completion of our internal investigation. First, I’d like to thank John Groetelaars for leading the business as Interim CEO and for helping to make my transition to CEO a smooth one. I’d also like to thank the entire Dentsply Sirona team. Our employees continued dedication and ability to stay focused throughout this period of change has only reinforced my confidence in the many opportunities ahead and I am excited to be leading this team at Dentsply Sirona. I am also joined here today by Glenn Coleman, our new Chief Financial Officer. As you all know, Glenn and I both joined Dentsply Sirona at the end of the third quarter, so this is our first earnings call as CEO and CFO. Together, Glenn and I bring a robust set of global leadership experience and medical device industry expertise that we expect will serve us well as we lead Dentsply Sirona into a new disciplined future. Importantly, we also intend to bring fresh perspectives and a critical eye to the business. I want to convey to you all why I am excited to be serving as the new CEO of Dentsply Sirona and why my early discoveries have reinforced my…

Thank you, Simon. Good morning, and thank you, all for joining us. Before turning to our financial results, I’d like to introduce myself to those of you I have yet to meet, having overseen financial and operational functions across several geographies and industries including healthcare, I am excited to take on this role as the company enters its next chapter. I joined Dentsply Sirona, because I believe it’s a great company with a legacy of strong brands and innovation. I look forward to working closely with Simon and the rest of the team to bring greater focus and discipline to our execution, advance our financial, operational and strategic goals, and ultimately deliver long-term growth and value creation. Today I’ll provide more detail on our third quarter financial results and an update on our 2022 outlook. But before I do, let me start with the recently announced completion of the previously disclosed internal investigation in accounting review. The findings resulted in a restatement of our third quarter 2021 10-Q and full year 2021 10-K. As disclosed in those amended filings, net sales were overstated for the third quarter and full year 2021 by $29 million and $20 million respectively. The company also revised full year 2020 and 2019 financial statements for immaterial hours. The combination of the investigation and accounting review also resulted in several material weaknesses and internal control over financial reporting. We have developed a comprehensive remediation plan to implement a number of process enhancements and additional controls to strengthen our overall internal controls environment including personnel changes, updates to the company’s code of ethics and business conduct, creation of or enhancements to commercial and accounting policies and procedures, and additional training for our team including commercial, finance and accounting employees. I’d refer you to our amended 10-K for…

Thank you, Glenn. Moving on to our strategic update. I want to share with you my thoughts on the strategy and how we will deliver on it going forward. Our strategy of enabling dentists to have superior integrated workflows is compelling. We believe on it and so does the Board. While we will continue to refine it, our strategy remains largely unchanged. But it will change as we how we will deliver on it going forward, which starts with the tone at the top of this organization and the actions we are taking now to move the business forward hand in hands or where appropriate introduce key capabilities. As we build our capabilities, we are thoughtfully considering the right formula to deliver against the following objectives. One, reliable and sustainable revenue growth; two, increasing profitability; three leverage of investments made and four double-digit earnings growth. To achieve these objectives, we are intensely focused on our strategy. It requires us to seamlessly bring together the power of our comprehensive portfolio of digital equipment, software capability, cloud-based solutions and essential consumables to provide solutions for our customers. This includes solutions which enable us to take an expanded view of our customers and their interaction points with dilution such as Byte and DS Core. This in turn allows Dentsply Sirona to become the essential partner to dentists regardless of where they are at on the digital journey. With that, I’d like to discuss actions we are taking as shown on Slide 18. With our investigation now concluded and remedial actions underway, Dentsply Sirona is at a critical inflection point. As we move forward, we are committed to improving the performance of the organization in all respects. Our organizational transformation stacked with a tone at the top and creating a speaking up culture. As…

[Operator Instructions] And our first question comes from Kevin Caliendo of UBS. Please go ahead.

Thanks. Thanks for taking my call. And thanks for all the information this morning. I guess, the question that we are all wondering here is, how to think about the runrate of the business in the third quarter and inside fourth quarter in terms of the margin, if there is anything there that’s one-time in nature, do you think this is the sort of runrate earnings power of the business as we go into 2023? And maybe as a second sort of follow-up to that, you talked about getting margins back over 20%, I am not going to ask for any 2023 guidance, but maybe talk through how you get from the margin in 2022 to that 20 plus percent rate going forward?

Yeah, Kevin, thanks for the question. This is Glenn. When we look at the runrate of our margins, obviously, sequentially, we were down from the second quarter to be sub-15%. Keep in mind, one of the things really impacting our margins right now is the significant foreign exchange headwinds and I think I put in my prepared remarks on a full year basis we are looking at an impact of close to 120 to 130 basis points alone just from FX. And obviously, having a lower revenue volumes is also contributing to deleverage in terms of our gross margin performance. So, I think we are doing a reasonably good job right now of managing our operating expenses, but for us, as we look forward in the fourth quarter, I would expect to see another step down sequentially in our operating margins given where we are at in the lower revenues that we are projecting here on a reported basis for Q4 sequentially. I think we’ll see a slight reduction overall in our gross margins, but the key for us is really focusing on getting the business back to growth in 2023 that will get us better performance in terms of leverage. We are looking at a number of things across our organization in terms of optimization initiatives. Simon mentioned some of those relative to his prepared remarks, and I think for us it’s really going through a deep dive on the entire organization structure and figure out how we could be more efficient to drive significant margin expansion as we move forward into 2023 and beyond and we do have a high degree of confidence that over the medium and longer term, we’ll get back to 20% plus operating margins across the business.

Thank you.

Our next question comes from Elizabeth Anderson of Evercore ISI. Please go ahead.

Hi guys. Thanks so much for the question. So, in terms of, I think you talked about some of the – that you are still getting pricing particularly in the U.S. when you were talking about your consumables business, can you help us think about like, what you are seeing in terms of like U.S. volumes versus sort of where you are still getting pricing across your portfolio?

Yeah, I think from a pricing perspective, we did a nice job to offset some of the cost inflation with price increases in 2022. I think on the whole, we are probably looking at close to a 3% overall increase on pricing. Obviously, it’s not fully offsetting some of the volume declines that we are seeing in the U.S. business. As we look at our U.S. performance, I think one of the key things to think about is the sales going through our distributors and we are seeing weakened demand on both the wholesale level and the retail level in terms of our U.S. sales given the recessionary environment. And we also started the year off with high inventory levels at distributors. And so we’ve been working that inventory down throughout the year and so the combination of those items, along with the fact we had more than usual open territories on a U.S. sales force that we are addressing as a result volumes that are down in the U.S. which is not something that we expect to continue over the long-term obviously we are addressing those things, especially the headcount item and filling those roles. And right now, I think that’s the key thing that we are focused on.

And I would supplement that, Elizabeth, with saying that we are investing right now in certain areas of the U.S. sales team. That work was commenced by John Groetelaars and Barbara Bodem when they were in their interim roles and we had an investment plan and we have begun to action that as well as in certain discrete areas of our U.S. commercial team.

Got it. And maybe just to pick up on that, so where are you sort of seeing under investment in sales? Is that the menu what sort of just attribute to this general turmoil leftover that you guys obviously inherited? Or is that’s something just like a broader macro picture like how do you long view think that that takes into your sort of back up to sort of full capacity in that respect?

Well, we have a very active recruitment program underway right now, Elizabeth. I would suggest that for the past number of years we have perhaps underinvested in the U.S. team in particular and that has driven some of the historical challenges with U.S. commercial performance where we are in the process, as I said, addressing that right now. And focusing on some of the emerging trends, as well in the U.S. region such as DSOs. So, we have - the work that was undertaken during the summer was comprehensive and completed and execution of that is now taking place.

Elizabeth, I would just add, while we saw, obviously, reductions overall in the U.S. business and volumes being down, there were some positives I'd call out. The Ortho business continues to perform quite well, both Byte and SureSmile. And our Imaging business, even with higher-than-usual backlog situation, we're actually showing nice growth there as well. So while we did see declines in equipment overall, we did see some bright spots in the U.S. business, which we expect to continue as we move forward here.

Super helpful. Thanks guys.

Our next question comes from Nathan Rich of Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for the questions. Two on the top-line. First, on the near term, could you maybe just help us think about what you're expecting for the fourth quarter maybe relative to what you saw in the third? And I guess, specifically, you talked about double-digit growth in clear aligners. It sounds like demand for imaging is still strong, but your fourth quarter guidance implies a slight moderation. So can you maybe just help us think about what you're seeing in the fourth quarter? And are you expecting some moderation in overall end-market demand? And then longer term, could you talk to us about what you see as the key pillars of getting back to that above-market growth? I think you even referenced growth potentially in line with the prior long-term targets, which were 4% to 5%. So could you just talk about maybe the longer-term opportunities there? Thank you.

Yes. So maybe I'll comment on the first piece, and Simon can comment on the second part on the long-term outlook. Just to remind everybody what we said back on the November 1 pre-announcement. We said reported revenues will be down sequentially from the third quarter to the fourth quarter in the low single-digit range. And on a constant currency basis, organic revenues will be flat to up low single digits sequentially from the third to the fourth quarter, and that's on an absolute dollar basis. So what that translates to, when you look at year-over-year, fourth quarter versus fourth quarter, is organic growth that's going to be down in the mid-single-digit range versus a quarter where we just came in at 0.7% down. So we are expecting to see a further decline in organic growth in the fourth quarter. If I look at the pieces in the fourth quarter, we do expect to see good growth coming out of Ortho. Both Byte and SureSmile should continue to show good growth in the fourth quarter, I mentioned that in my prepared remarks. Imaging should continue to show growth, but we do expect to see continued declines in the equipment side of our business, similar to what we saw, I would say, in the third quarter. On the Consumables side, I think the preventative consumables will continue to hold up pretty well here in the fourth quarter. I don't want to say they're recession-proof, but certainly less impacted by a recession. But we do expect to see our restorative consumable products show a decline year-over-year in the fourth quarter. So overall, that's how we're looking at Q4. And again, we expect to be down year-over-year, probably in the mid-single-digit range for organic growth.

And then, Nathan, with respect to our long-term outlook, as I answered on the last question from Elizabeth, we are investing in the North America commercial team, the sales team, in particular. So we expect to begin to remediate some of their performance. And when I look across the world, Europe has had a strong year despite the headwinds with growth in each quarter. If we exclude China from the Rest of the World, so LatAm and APAC ex China, we've seen high single-digit growth there as well. But as we said in our prepared remarks, what Glenn and I are bringing to Dentsply Sirona is absolute discipline and focus on execution. And that starts with the operating model that we're introducing here and rigor around projections, rigor around R&D, rigor around the delivery of anticipated revenue from R&D launches. So that model, in conjunction with the track record we have with training the dental community here in Charlotte and also in Bensheim, where we've trained in excess of 7,000 dentists in Charlotte this year, I think we have a track record of technology and a wealth of knowledge in the organization and if we partner that with rigor and discipline, we strongly feel we can get back to where we should be in the dental market.

Thanks very much.

And it looks like our next question comes from Erin Wright of Morgan Stanley. Please go ahead.

Great. Thanks. How should we think about the recent trends in CAD/CAM? And how should we think about your overall strategy in CAD/CAM now with Primescan Connect? And will chairside still be a meaningful part of your sales effort going forward? Are we moving away from that, given the market has evolved? And how would you characterize overall demand for chairside now? Thanks.

So with respect to CAD/CAM and digital, we strongly feel that the strategy we have, Erin, is an appropriate one. We continue to invest behind digital, whether that's software or pieces of capital equipment that we're delivering both to chairside and to lab and we will continue to address the needs of the market and also, if you look for key evolutions in the trends of the market, such as within the DSO community. So while we've experienced some pressure here, we do think that CAD/CAM is going to be a key part of our business moving forward. And the fact that we are a full-line supplier to the dental community, we should be – we should continue to drive digital and CAD/CAM and get the commensurate consumable pull-through associated with that, as well. So, our strategy, for the most part, remains intact. For sure, there will be continued refinement of it as we move forward. But the pivot will be, as I noted in the prepared remarks and to Nathan's question will be increased rigor and discipline around execution and monitoring performance.

Okay. Great. And then, a quick one on just what is the time line of your strategic review? Or when do you think we'll get more details there? And what is being assessed initially? And is everything on the table, including divestitures? Thanks.

So we've already commenced that work. Part of it started during the summer, with respect to North America, and we have ongoing reviews right now with respect to winning portfolio and how we are organized for success moving forward. We would expect that at the Q4 call in February to begin to share more details about what that plan looks like. But we have acted with urgency in the past nine weeks. We're partnering with external partners to do a baselining of our performance. And we expect to be in a position to communicate more around the Q4 earnings call in February.

Next question please.

And our next question comes from Brandon Couillard of Jefferies. Please go ahead.

Hey, thanks. Good morning. Simon, just on the Byte business, it sounds like your intent is to keep that – those operations. Can you just talk about why and what about the business is attractive to you in terms of longer-term growth profile? And do you still expect to deliver positive revenue growth in that business for the full year?

So, listen, we think Byte has a key role in our portfolio moving forward. We are end-to-end on the digital or on the consumable and digital scale and we think we should be end-to-end on the consumer spectrum as well. So, we think there's a future for Byte. The Aligner business has delivered double-digit growth for us. We feel we can do better with it for sure. We are investing behind it to make it easier to do business with and get more conversions out of that business. But for sure, for now, Byte remains a key part of our business, and will continue to be so for the foreseeable future.

Yeah and then on the financial performance of Byte, I would just say, Byte has shown sequential growth each and every quarter in 2022. So we're very encouraged by that. In the third quarter, we did see double-digit growth and we do expect to see growth in the fourth quarter year-over-year as well. On a full year basis, though, given the tough first half of the year comps, we do expect to be down probably in the mid-single-digit range on a full year basis.

Got it, the double. And then, can you just touch on where you see the biggest choke point in terms of the supply chain right now? Are you able to quantify any dollar amount into the revenue that the supply chain headwind may have limited and kind of outlook for, maybe when you start to see some improvement there?

Yeah. I wouldn't go as far as to quantify it, Brandon, but the electronics will still continue to be a headwind and a blockage for us, although demand coming in or requests for technology continues to be strong. So it's – we have not seen a dramatic improvement in the outlook for the electronic parts of our technology over the past couple of quarters.

Yeah, and I would just say, treatment centers is probably the other pain point we have relative to supply. And then on the positive news front, Consumables continues to get better overall relative to our back order situation. So I feel really good about the progress we made on Consumables. But electronics and treatment centers are probably the two pain points right now on the supply side.

Thanks.

And our next question comes from Jeff Johnson of Baird. Please go ahead.

Thank you. Good morning, guys. Simon, I wanted to go back to the portfolio question, just kind of composition of portfolio. And I think soon after you joined, soon after Glenn joined, we all did kind of calls with each of you. And I think the comment was more around some significant potential portfolio reallocation over time. Today, on the call, it sounds like you're talking more about optimization, Glenn talking about a commitment to buybacks and dividends. And the latter makes sense, but not necessarily building a war chest of doing buybacks. So I guess, has something shifted in the last six or eight weeks on kind of how much you think might need to be done on reconstructing the portfolio, reallocating the portfolio? I mean, if I look back over the last 10 or 12 years, earnings basically this year are going to be at about trough where they were in 2008, 2009. So a lot of stuff that feels like could be reworked here or might need to be reworked, but it seems like you might be backing off a little bit of that portfolio reallocation commentary. Thanks.

No. No, I wouldn't say backing off at all, Jeff. I would say, increasing the scope of the work that we spoke about in the call that we had with you and several of your peers in the September time frame. There are clear areas of our business that we're looking at with respect to moving on. And then there are clear areas of our business where we probably have a proliferation of SKUs and through taking a long hard look at our SKU mix, we feel that we can optimize some of our offerings, optimize the allocation of cash and focus our energies within our network on driving growth in those areas that are delivering growth and have a better longer-term outlook for us. So I don't think we have narrowed our scope at all. I would say, we have broadened it to look at the SKUs and a winning dental portfolio in general.

Okay. That’s helpful. Thank you. And just a quick follow-up, but going back, I think it was the first question in Q&A, but Glenn, I just want to understand the margin commentary, fourth quarter going to be down in the low-double-digits, the third quarter obviously slipped below 15%. Currency headwinds aren't going to come off right away. Is that at least the starting point we should be thinking about early next year kind of in that second half range of this year at least to be starting to build a base off as we think about kind of 2023 and 2024 estimates? Thanks.

Yeah, I would expect that our Q4 operating margins are the low water mark and that we will build off of that going into next year.

Thank you.

We'll give more color on next year's operating margin guidance and how it would shape up by quarter when we get to our February earnings call.

And our next question comes from Mike Cherny of Bank of America. Please go ahead.

Hi. This is Dan Clark on for Mike. Thanks for taking my question. Just on China and the volume-based procurement headwind, can you just help size that for us? I understand it's going to go into effect next year, but just how should we think about the magnitude of that and then the timing before that ultimately turns as your potential tailwind for you guys? Thank you.

Thanks, Mike, for the question. Yeah, let me try to size this up. I'll use 2021 as the basis for my comments. I think we previously said China is about 5% of our consolidated revenues, so call it $200 million, and that's based off of a full year 2021 numbers. Obviously, with COVID shutdowns and so forth, the number is a bit lower. But just use $200 million as a starting point for our revenues in China. The portion of our business that's impacted by VBP is our implants business, which is about 25% of our revenues in China. So if you do the math on that, call it, $50 million impacted by VBP. However, of our implants business, 90% of it is probably impacted, 10% is not, just based upon the products that we sell in China. So it's about $40 million to $45 million of our implants business that's impacted. Right now, we think there's probably about a 30% price reduction coming that would impact us. There's probably a bigger reduction, but some of it will be borne by our distributors in China. And so I would take 30% of, call it, $45 million as a rough order of magnitude impact on our business right now from a pricing perspective, which call it somewhere between $10 million to $15 million on the top and bottom line. Obviously, as we move past the pricing headwind, we do expect to make some of that back up with volume increases. It's too early to tell when that comes back. And hopefully, we can offset most of this pricing headwind at some point in the second half of 2023, but it's still too early to tell. We still have to go through the bidding process and see what our incremental volume would be as a result of VBP. But hopefully, that sizes for you the impact just from the pricing piece, which I would say is somewhere between $10 million to $15 million.

Great. Thank you. And then just a follow-up. The – your 4Q guide for Clear Aligner growth in the double-digits, is that sort of an appropriate jump-off point when we're thinking about 2023?

Yeah, I don't want to comment yet on 2023. Obviously, we have to see how we end up the year. We have to see what the macro headwinds look like around the aligners business. I would just say, we're encouraged by the momentum we have in our aligners business, given that we've grown sequentially for three consecutive quarters in both of our direct-to-consumer and in-office aligner businesses, which is encouraging. We're seeing double-digit growth here in the third quarter, expecting good growth year-over-year in the fourth quarter. But until we get to next year and we see the impact on consumer confidence, consumer spending, I'm going to be cautious on what I say around next year until we get there.

Thanks.

And our next question comes from Jon Block of Stifel. Please go ahead.

Great. Thanks guys. Good morning. Just maybe a follow-up on CAD/CAM. I think in the U.S., it was down high-single-digits or more, maybe even low-double-digits. Can you guys just talk to the end-market demand for CAD/CAM versus what still might be some inventory headwinds or maybe just sort of framed differently, are we now fully normalized for the inventory in the channel specific to the U.S.? And then I'll ask a follow-up.

Yeah, I think the reduction in terms of year-over-year volumes in CAD/CAM is a combination of burning through the inventory that we had on hand at the end of the year, along with softening retail demand. So I don't have a good estimate of what that split looks like. But clearly, it's a combination of the two factors. And I think as we lap into 2023, obviously, our dealer inventory levels are going to be at very reasonable levels, lower levels than probably historical norms even and then it comes down to what's the retail demand look like, and it's too early to tell what that's going to look like right now. But obviously, with rising rates, it could put pressure on our equipment business overall, and this would be part of it. But clearly, when you look at the performance this year, it's a combination of burning down the inventory levels at dealers and, I would say, softening demand at the retail level for the overall CAD/CAM business.

Okay. And then maybe just to shift gears. Look, you've had some really good new products recently, Primescan Connect and Primeprint. And maybe just talk to us about uptake at the DS World. And we always think about Dentsply Sirona as an innovator, and you've got IDS in the not-too-distant future. Are we looking at what you're going to have out there? Are there still some incrementals maybe in your back pocket that might come to light over the next, I don't know, four, five months? Maybe just talk to us about the pipeline and new products and how you see that unfolding in coming quarters. Thanks guys.

Sure. Thanks, John. Listen, I was at DS World, as I mentioned and I was extremely impressed that we have 3,500 dental professionals at a trade show and training event for Dentsply Sirona products and technologies. I think the technologies that we have are really very robust and serving the emerging trends in the dental industry, making dentists and their practices more efficient and enabling better outcomes for their patients. So, I was very confident with what I saw at DS World and the new technologies that we are bringing to bear on the market, including your Primescan Connect and Primeprint and indeed, the new software solution, DS Core. So uptake of those, it's early, it’s six weeks ago or so. Uptake has been reasonably strong. Obviously, as we move forward, as we said in our prepared remarks, the discipline that we have around new product development, around identifying the markets that we want to play in and rigor and discipline around how we track and monitor performance is going to increase in a very meaningful way here at Dentsply Sirona moving forward. But the base of technology that we have and the knowledge and interaction that I saw between our reps and their customers was really exceptional and as we move forward into 2023, you should expect more product launches, primarily, I think I would classify them as incremental product launches in 2023, but that's quite fine, too. Singles and doubles also add up to meaningful revenue. But as I said, you should expect to see more rigor and discipline around our commercial and new product development efforts moving forward.

Great. That’s great color. Thanks guys.

Our next question comes from Michael Petusky of Barrington Research. Please go ahead.

Hi, good morning. So, Simon, I focused on Slide 18, where you talked about tone at the top and you say creating and fostering a culture of speaking up, compliance and accountability. And I'm just curious, certainly, that bullet implies that those things weren't being done at an appropriate level. And concretely, I mean, what do you do other than sort of removing maybe folks that weren't – both employees, leaders that weren't aligned with that? Other than doing that, I mean, what do you do to create a culture of speaking up and compliance and accountability?

Well, for sure, Mike, what we've already begun to drive here is a culture of inclusivity so that people have an opportunity to share their voice and that there is no – that there are zero consequences for speaking up here at Dentsply Sirona. Both Glenn and I and the remainder of the management team are committed to that and providing fora and opportunities for employees to share their opinion. Now we will be – we won't seek consensus. We will seek opinion, and then we will make decisions and move forward on those – on any topics that come up. But our organization has proven to be resilient. As I said to the previous question, the technology that we have is robust. And when we create a place where – for people who want to come in and do their best where their voice is appreciated and welcomed, and where we operate with rigor and discipline, we feel we can get the performance of our organization factor where we expect it to be and where all of you expect it to be as well.

Okay. Can I just ask one more question, just on the strategic review, as you guys think about capital allocation going forward, I know dividend has been part of the history of Dentsply. But given the internal investment you guys want to make in U.S. sales and other places, I mean, is dividend, a quarterly dividend? I mean, is that absolute a part of capital allocation going forward? Or is even something like that on the table as far as assessing things?

I would say, we are still intending on paying a dividend moving forward. So no change to that. I think the big focus for me and the leadership team is how we're going to improve cash flows across the business to get more capital to be deployed, including dividends, share repurchases and investing organically in the business, which is obviously important when we think about the investments we need to make. And so my big focus is really on improving cash flows so we can continue our dividend program, do more share buybacks and being able to reinvest in the business, and then down the road, do some accretive tuck-in acquisitions that fit our strategy and so that's really the key focus for us. And I would tell you that I'm setting a goal for the organization to have a free cash flow conversion rate of at least 100% moving forward. I mean, that's an expectation that I expect to hit and achieve, and a big part of it is improving profitability, just looking at inventory and how we can get more cash out of our inventory and reducing these onetime costs that we're currently incurring. And so there is a big opportunity from my perspective to do that. And again, I don't see any change to our dividend strategy that's been implemented to-date.

Thank you. Appreciate it.

Our next question comes from Jason Bednar with Piper Sandler. Please go ahead.

Thanks. Good morning. Thanks for taking the question here. Simon or Glenn, you referenced more pronounced recessionary impacts in the U.S., also some certain European markets, some risks around higher out-of-pocket procedures, potential for slowdown in equipment. I mean, all this sounds like early framework for 2023. I know we're not going to get formal guidance here. I know some others have taken a stab at it, but I'll do mine here as well. Is that – the down mid-single-digit growth here in 4Q a place where, I guess, you feel comfortable with Street estimates for at least the first half of next year, just given some of those comments you made that were forward-looking or are you willing to commit here today to, on a full year basis for next year, expanding margins and/or growing EPS next year?

Hey, Jason, it's Glenn. We are not going to comment on 2023 at this point. I think we've got to see where we finish up the year, have to see what the environment looks like as we enter 2023. And so I'm going to refrain from making any comments on 2023, only to say that we're going to act with urgency to really get the organization on a better path to growth and profitability as we move forward. So, more to come when we get to the February call, but for now, I think we're going to pass any further comments in 2023.

Okay. Understood. I thought I'd try. And then, maybe just a follow-up here on pricing. I think you mentioned a three point tailwind from pricing here most recently. It looks like you did another round of price increases in at least some parts of the world on October 1. Maybe could you confirm that? Was it global? Was it just regional? And then did that drive any – that price increase that was in place, assuming it was, does that drive any above-normal pre-buying in 3Q and out of 4Q that's influencing the organic growth guide that you have here for the fourth quarter?

Yes, so, we can confirm we did a price increase middle of October. So, yes, we did another price increase. And no, there was no pre-buys relative to that price increase coming. So it was select in terms of where we did the price increase. I don't think we did an across-the-board increase. We had to be very selective in where we did it, but we did implement one middle of October and hopefully, that can offset some of the cost headwinds we're seeing as we move forward.

And in fact, I would add a comment on China to that. When the VBP was announced, we actually saw some pullback from our distributors in China as they manage their inventory levels, as well with the anticipated changes in China.

Okay. That's helpful. And just Glenn, any quantification around that price increase or would you call it normal or standard for you?

Yeah, I don't have a good quantification of it. I would just say, pretty much normal to what we've done in the past.

Okay. Thanks so much.

Our next question comes from Brandon Vazquez of William Blair. Please go ahead.

Hi everyone. Thanks for taking the question. I just wanted to clarify an earlier comment, because I know we weren't getting too much on 2023 at this point, which I can appreciate. But I think I heard a comment earlier that you did want to return to growth next year. So, first, is that fair? Is that what we're thinking about even if it's maybe, just on a full year basis, a little bit of growth? And then, the follow-up would be, you obviously have a lot of great strategic outlines here. There is still more work that needs to be done in flushing them out. But if you are feeling confident that you could see some growth in 2023, maybe what are some of those, I guess, I'd call them low-hanging fruits that you guys are identifying strategically that could help you return to that next year?

Yeah, Brandon, I'll start and then maybe, Simon, you could add some comments as well. In 2023, again, we're going to do what we can to show better performance in 2023 versus 2022. But we're not going to give any further comments on what the top-line growth or declines looks like or what the margin expansion looks like. So again, we'll give more color on that when we get to February of 2023. Simon, I don't know, what else you want to add?

Yeah, I would add to that about the investments and trying to get after the growth profile of the organization. We mentioned the work that we are doing on the portfolio and on structuring our organization for success moving forward. So, when I look at that and we already spoke in our prepared remarks about getting ourselves above the 20% operating margin. I am confident that we have the resources in this organization to invest for growth without increasing the company's operating expenses and so that is a key focus for us moving forward. We've already demonstrated that we're willing to invest to drive growth in the North America investment and we will continue to have that mindset about thoughtful and disciplined investment for growth and an equally thoughtful disposition to expenses moving forward.

Got it. Thank you. And then, within – maybe just to close up within Clear Aligners, can you talk about where you are seeing some growth? Sounds like you guys are happy with some of the initial traction you're seeing on the Clear Aligner side. So maybe talk a little bit about like are these new accounts – is growth coming from new accounts? Are you going deeper into existing accounts? And where you would expect kind of momentum going forward? Thank you.

Yeah, I think the growth we are seeing is pretty broad. Part of it is geographic expansion. Part of it is better conversion rates with customers. But it's pretty broad. U.S., Europe, Rest of World. So I think the good news is, it's pretty broad in terms of the growth and I think geographic expansion is obviously an important part of it.

Yeah, I would just highlight, SureSmile has been really a stellar performer in this. I mean, if I look at the growth rates for the first nine months of this year, each quarter, we are putting up sequential and impressive growth year-over-year. So we do think we're taking some share here and with our plans moving forward, this should be a bright spot in the portfolio.

At this time, this concludes our question answer session. I would now like to turn the call back over to Mr. Simon Campion, CEO. Please go ahead.

Thank you, everyone, for participating today and for your thoughtful questions on the call. In closing, I would like to reiterate my thanks to all the Dentsply Sirona employees around the world for their patience and fortitude as the organization navigated this tumultuous period. We can all now focus on running this organization to the very best of our abilities. So, once again, thank you for your time today.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.