DENTSPLY SIRONA Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This Form 10-K is an annual filing; it does not provide a standalone Q4 income statement. Dentsply Sirona is a global dental products and technologies company operating through Technologies & Equipment and Consumables segments.
Business context
- Technologies & Equipment represented 59.4% of 2021 sales; Consumables represented 40.6%.
- The Company sells in more than 150 countries, with approximately two-thirds of sales outside the United States.
- Key growth areas include digital dentistry, CAD/CAM, imaging, implants, clear aligners, endodontics and restorative products.
- Approximately 24% of 2021 sales came from products introduced during the prior three years.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $4.251 billion | $3.342 billion | +27.2% |
| Organic sales growth | 24.6% | Not provided | |
| Gross profit | $2.361 billion | $1.657 billion | +42.5% |
| Gross margin | 55.5% | 49.6% | +590 bps |
| Operating income | $622 million | $(12) million | +$634 million |
| Net income attributable to Dentsply Sirona | $421 million | $(83) million | +$504 million |
| Diluted EPS | $1.91 | $(0.38) | |
| Cash flow from operations | $657 million | $635 million | +$22 million |
- Approximate 2021 operating margin was 14.6%, compared with a slight operating loss in 2020; approximate net margin was 9.9%.
- Technologies & Equipment revenue increased 28.7% to $2.524 billion, with adjusted operating income of $556 million versus $387 million.
- Consumables revenue increased 25.0% to $1.727 billion, with adjusted operating income of $541 million versus $314 million.
- Cash and cash equivalents were $339 million at December 31, 2021, down from $438 million.
- Total debt, including current and long-term portions, was approximately $2.095 billion; net debt was $1.756 billion. Net debt to total capitalization improved to 25.8% from 27.0%.
- The Company had $560 million of remaining borrowing capacity under credit lines, including its commercial paper and revolving credit facilities, and was in compliance with debt covenants.
- Accounts receivable days increased to 61 from 54, and inventory days increased to 108 from 102, reflecting working-capital investment and supply-chain constraints.
Material changes versus the prior comparable period
- Results benefited from recovery in dental demand and patient traffic after the severe 2020 COVID-19 disruption, as well as new product launches, geographic expansion and favorable product mix.
- Gross margin improved due to higher-margin products, portfolio optimization and discontinued lower-margin orthodontic and laboratory products, partly offset by pricing incentives and higher distribution and supply-chain costs.
- SG&A increased 18.2% to $1.551 billion because of strategic investments and lower government COVID-19 relief, but declined to 36.5% of sales from 39.3%.
- R&D increased 38.9% to $171 million, or 4.0% of sales, driven by digital workflow, software, clinical application and innovation-center investments.
- No goodwill impairment was recorded in 2021, compared with a $157 million charge in 2020. The Company still carried $3.976 billion of goodwill and $612 million of indefinite-lived intangible assets at year-end.
- 2021 acquisitions included Datum Dental, Propel Orthodontics and a Swiss specialized software affiliate. Cash paid for acquisitions and equity investments was $248 million, compared with $1.078 billion in 2020, which included the Byte acquisition.
- The Company repurchased approximately 3.5 million shares for $200 million and had $890 million remaining under its $1 billion repurchase authorization at year-end.
Guidance, outlook, risks and unusual items
- The restructuring program targets annualized net sales growth of 4% to 5% and adjusted operating income margins of 22% by the fourth quarter of 2022. Total program charges are expected to be approximately $345 million, with annual cost savings of approximately $250 million. Approximately $321 million had been incurred through December 31, 2021, and most remaining charges were expected in the first quarter of 2022.
- The Company expects 2022 capital expenditures of approximately $150 million to $170 million, including facility expansion and consolidation projects.
- Management expects sufficient liquidity over the next twelve months to fund operations, capital expenditures and debt service.
- COVID-19 effects continued through supply-chain disruption, higher raw-material, freight and labor costs, and uneven regional demand. Certain Southeast Asian markets experienced renewed weakness.
- Dealer CAD/CAM inventories were approximately $50 million higher than the prior year at December 31, 2021, creating potential 2022 sales headwinds.
- The Russia-Ukraine conflict was identified as a subsequent event. 2021 sales in Russia and Ukraine were approximately 3% of consolidated sales and related net assets were $63 million; the future effect of sanctions and disruption was uncertain.
- The IRS has challenged a $546 million worthless-stock deduction. The Company has not accrued a liability and believes its position is more likely than not to be sustained, but an adverse resolution could materially affect earnings, liquidity and financial position.
- The Swedish Tax Agency dispute could result in up to $11 million of additional tax expense based on the remaining asserted issue, while an earlier broader estimate was $44 million.
- Other principal risks include regulatory and product-approval requirements, product liability, intellectual-property disputes, cybersecurity and privacy, foreign exchange, distributor concentration, acquisitions, goodwill impairment, talent retention, supply-chain dependency and debt covenant compliance.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2021. The 2021 financial statements received an unqualified audit opinion.
Most important facts for an investor to verify
- Whether post-pandemic demand, dealer inventory normalization and supply-chain recovery support the 2022 sales and margin targets.
- Progress toward the 22% adjusted operating margin objective and the timing and amount of remaining restructuring charges and savings.
- Cash conversion, receivables and inventory trends, particularly the increase in days outstanding and inventory days.
- Debt maturities, refinancing plans, covenant headroom and the continued availability of the revolving and commercial paper facilities.
- Potential impairment sensitivity for the $3.976 billion goodwill balance and $612 million of indefinite-lived intangible assets.
- Developments in the IRS worthless-stock deduction dispute, Swedish tax matter and other litigation or regulatory proceedings.
- Financial and operating exposure to Russia, Ukraine, foreign exchange movements, inflation, labor shortages and geopolitical disruption.