DENTSPLY SIRONA Inc. — Form 10-Q Summary
Business context and reporting period
DENTSPLY SIRONA is a global dental products and technology company operating through Technologies & Equipment and Consumables segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods. Results benefited from recovery in dental demand following the initial COVID-19 disruption.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,067 million | $491 million | $2,094 million | $1,365 million |
| Gross profit / margin | $598 million / 56.0% | $176 million / 35.8% | $1,177 million / 56.2% | $644 million / 47.2% |
| Operating income (loss) | $155 million / 14.5% margin | $(104) million | $309 million / 14.8% margin | $(229) million |
| Net income attributable to DENTSPLY SIRONA | $99 million | $(95) million | $216 million | $(235) million |
| Diluted EPS | $0.45 | $(0.44) | $0.98 | $(1.07) |
| Cash flow from operations | Not separately provided | Not separately provided | $263 million | $164 million |
- Q2 sales increased 117.3%; six-month sales increased 53.4%. Organic sales growth was 104.6% in Q2 and 45.3% for the six months.
- Q2 segment sales were $622 million for Technologies & Equipment and $445 million for Consumables. Six-month sales were $1,219 million and $875 million, respectively.
- Six-month adjusted operating income was $261 million for Technologies & Equipment and $304 million for Consumables.
- Cash and cash equivalents were $332 million at June 30, 2021, compared with $438 million at December 31, 2020. Total debt, including current and long-term portions, was $2,251 million carrying value; estimated fair value was $2,411 million.
- Total net debt to total capitalization was 27.4%, compared with 27.0% at year-end 2020. Available borrowing capacity was $744 million, and the Company reported no borrowings under its commercial paper or revolving credit facilities at June 30.
- Operating cash flow of $263 million was offset by $279 million of investing outflows and $78 million of financing outflows, resulting in a $106 million decrease in cash.
- Capital expenditures were $66 million year to date. The Company expects full-year 2021 critical capital expenditures of approximately $150 million to $170 million.
Material changes versus the prior comparable period
- Revenue and profitability rebounded sharply as dental patient traffic and demand normalized in major markets. The comparison is affected by depressed COVID-19 results in the second quarter of 2020.
- Gross margin expanded primarily because of favorable product mix and higher sales of higher-margin products. SG&A declined to 37.3% of Q2 sales from 53.2% in the prior-year quarter, while R&D remained 3.7% of sales.
- The six-month comparison excludes the $157 million goodwill impairment and $39 million indefinite-lived intangible impairment recorded in 2020. No such impairments were recorded in 2021.
- Six-month restructuring and other costs declined to $8 million from $44 million. The Company had incurred approximately $321 million under its broader restructuring program since November 2018 and expects nearly all remaining charges related to the 2020 portfolio actions to be completed by the first quarter of 2022.
- The Company acquired Datum Dental for total preliminary consideration of $103 million, Propel Orthodontics for $132 million, and a minority interest in a healthcare consumables provider for $16 million. The acquisitions were not material to reported sales or earnings individually or in aggregate.
- The Company repurchased approximately 1.5 million shares for $90 million during the first six months. On July 28, 2021, the Board increased the authorized repurchase capacity to up to $1.0 billion.
- Cash conversion was affected by working-capital investment: inventory increased to $539 million from $466 million, and inventory days increased to 113 from 102 at year-end 2020 on a constant-currency basis.
Guidance, outlook, commentary, risks, and unusual items
- Management reported continued demand recovery but noted renewed COVID-19 infections and demand setbacks in parts of Southeast Asia and South America. The timing of full normalization and the potential effect of future variants remain uncertain.
- The restructuring program targets annualized net sales growth of 3% to 4%, adjusted operating income margins of 22% by the end of 2022, and annual cost savings of approximately $250 million under the expanded plan. These are management targets, not guarantees.
- The Company expects sufficient liquidity for the next 12 months and expects to remain in compliance with debt covenants. It continues to review potential debt refinancing or additions.
- Subsequent to quarter-end, the Company prepaid $296 million of Senior Notes using cash and short-term commercial paper, entered into interest-rate and cross-currency swaps, and acquired the remaining interest in a Swiss dental business for $10 million.
- Material contingencies include an IRS dispute concerning a $546 million worthless-stock deduction. The Company has not accrued a liability; an adverse outcome could materially affect earnings, financial position, and liquidity. A Swedish tax dispute could result in approximately $49 million of additional tax expense if the deductions are disallowed.
- Goodwill and indefinite-lived intangible assets passed the April 1, 2021 impairment tests, including stated sensitivity analyses. Future changes in forecasts, discount rates, market conditions, or COVID-19 effects could nevertheless produce material impairment charges.
- Other risks include foreign-currency exposure, interest-rate risk, supply and inventory requirements, litigation, product and intellectual-property claims, regulatory matters, and the execution of acquisitions and restructuring initiatives.
Most important facts for investors to verify
- Whether post-pandemic demand recovery and reported organic growth are sustainable after the favorable 2020 comparison.
- Progress toward the 22% adjusted operating margin and approximately $250 million annual cost-savings targets.
- Working-capital trends, particularly inventory days, receivables, and operating cash-flow conversion.
- The effect of the July 2021 debt prepayment and swaps on interest expense, leverage, and liquidity.
- Resolution and potential financial exposure from the IRS and Swedish tax disputes.
- Future impairment risk for the $4.0 billion goodwill balance and $2.5 billion identifiable intangible asset balance.
- Actual scale and timing of share repurchases following the increased authorization.