DENTSPLY SIRONA Inc. Form 10-Q Summary
Business context and reporting period
DENTSPLY SIRONA is a global dental-products and technologies company operating through Technologies & Equipment and Consumables segments. The filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $1,069 million | $895 million | $3,163 million | $2,260 million |
| Gross profit | $591 million | $442 million | $1,768 million | $1,086 million |
| Gross margin | 55.3% | 49.4% | 55.9% | 48.1% |
| Operating income (loss) | $159 million | $82 million | $468 million | $(147) million |
| Net income attributable to Dentsply Sirona | $103 million | $53 million | $319 million | $(182) million |
| Diluted EPS | $0.47 | $0.25 | $1.45 | $(0.83) |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $435 million | $372 million |
Q3 organic sales increased 21.1%, while reported sales increased 19.4%. Nine-month organic sales increased 35.8%, compared with 40.0% reported growth. Q3 segment sales were $629 million for Technologies & Equipment and $440 million for Consumables. Nine-month segment sales were $1,848 million and $1,315 million, respectively.
At September 30, 2021, cash and cash equivalents were $281 million, total debt was $2,076 million at carrying value, and net debt was $1,795 million. The total net debt-to-capitalization ratio was 25.9%, compared with 27.0% at December 31, 2020. The company reported $607 million of borrowing capacity under available credit lines. Commercial paper borrowings were $139 million at quarter-end; the revolving credit facility had no outstanding borrowings.
Current assets were $1,804 million versus current liabilities of $1,126 million. Accounts receivable and inventory increased from year-end, with reported days sales outstanding and days of inventory each increasing by eight days to 62 and 110 days, respectively.
Material changes versus the prior comparable period
- Sales growth reflected recovery in dental demand after the COVID-19 disruption, recent product launches, dealer purchases ahead of annual price increases, and acquisitions.
- Gross margin expanded by 590 basis points in Q3 and 780 basis points for the nine-month period, primarily due to favorable product mix and higher-margin volumes.
- SG&A increased in Q3 as advertising, promotion, headcount, and compensation returned toward more normalized levels. For nine months, SG&A as a percentage of sales declined to 37.2% from 41.4% because of higher sales and expense discipline.
- Research and development expense increased to $35 million in Q3 and $112 million for nine months, reflecting increased investment in digital workflow, software, product development, acquisitions, and the Charlotte innovation center.
- The prior-year nine-month results included a $157 million goodwill impairment charge and a $39 million indefinite-lived intangible impairment charge; no comparable impairments were recorded in 2021.
- Restructuring and other costs declined to $3 million in Q3 and $11 million for nine months, versus $18 million and $62 million, respectively, in 2020.
- The company paid $248 million for acquisitions during the first nine months, including Propel Orthodontics, Datum Dental, and the remaining interest in a Swiss dental software affiliate. It also invested $16 million in a minority affiliate interest.
- Cash declined by $157 million during the first nine months, primarily because acquisitions, capital expenditures, debt repayment, share repurchases, dividends, and exchange-rate effects exceeded operating cash generation.
Outlook, management commentary, risks, and unusual items
- Management reported normalized demand and dental patient traffic in major markets, although Southeast Asia and South America experienced COVID-19-related setbacks. Supply-chain risks include labor shortages, shipping disruption, and input-cost inflation; no material production or procurement disruption had occurred through the filing date.
- 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. Approximately $321 million of program expenditures had been incurred since November 2018. Nearly all remaining charges related to the 2020 portfolio actions are expected to be completed by the first quarter of 2022.
- Expected full-year 2021 critical capital expenditures are approximately $150 million to $170 million. Management stated that sufficient liquidity was available for the next twelve months and that it expected to remain in compliance with debt covenants.
- The company repurchased approximately 1.5 million shares for $90 million during the first nine months. The board authorized up to $1.0 billion of additional repurchases, with the authorization unused and available at September 30, 2021.
- Management’s April 1, 2021 impairment testing found no goodwill or indefinite-lived intangible impairment, including under stated sensitivity analyses. Future impairment charges remain possible if operating forecasts, market conditions, discount rates, or COVID-19 impacts deteriorate.
- Material contingencies include an IRS dispute involving a $546 million worthless-stock deduction and a proposed 2014 tax deficiency of $17 million, excluding interest; an adverse outcome could materially affect earnings, financial position, and liquidity. A Swedish tax matter could result in up to $12 million of additional tax expense based on the company’s current description, while a broader potential exposure had previously been estimated at $49 million.
- The filing also describes pending securities litigation and other ordinary-course legal matters. The company believes these matters are not expected to have a material adverse effect, but unfavorable developments could be material.
Important facts for investors to verify
- Whether post-pandemic demand normalization and Q3 dealer timing persist, particularly after annual price resets.
- The effect of supply-chain costs, labor availability, freight rates, inflation, and renewed COVID-19 restrictions on margins and working capital.
- Progress toward the restructuring program’s $250 million annual savings target and completion of remaining charges by early 2022.
- Execution and returns from recent clear-aligner, regenerative-materials, orthodontic, and software acquisitions.
- Future cash deployment among acquisitions, capital expenditures, debt refinancing, dividends, and the $1.0 billion share-repurchase authorization.
- Resolution of the IRS and Swedish tax disputes, pending securities litigation, and any resulting liquidity or earnings impact.
- Whether goodwill and intangible assets remain recoverable under changing market conditions and operating forecasts.