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Edited Transcript of XRAY earnings conference call or presentation 2-Mar-20 1:30pm GMT

Q4 2019 Dentsply Sirona Inc Earnings Call

YORK Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Dentsply Sirona Inc earnings conference call or presentation Monday, March 2, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald M. Casey

DENTSPLY SIRONA Inc. - CEO & Director

* John Sweeney

DENTSPLY SIRONA Inc. - VP of IR

* Jorge M. Gomez

DENTSPLY SIRONA Inc. - Executive VP & CFO

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Conference Call Participants

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* Allen Charles Lutz

BofA Merrill Lynch, Research Division - Associate

* Brandon Couillard

Jefferies LLC, Research Division - Equity Analyst

* Elizabeth Hammell Anderson

Evercore ISI Institutional Equities, Research Division - Associate

* Erin Elizabeth Wilson Wright

Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst

* Glen Joseph Santangelo

Guggenheim Securities, LLC, Research Division - Analyst

* Jeffrey D. Johnson

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* John Charles Kreger

William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst

* Jonathan David Block

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

* Kevin Caliendo

UBS Investment Bank, Research Division - Equity Research Analyst of Healthcare IT and Distribution

* Nathan Allen Rich

Goldman Sachs Group Inc., Research Division - Research Analyst

* Stephen Christopher Beuchaw

Wolfe Research, LLC - Director of Equity Research

* Steven James Valiquette

Barclays Bank PLC, Research Division - Research Analyst

* Tycho W. Peterson

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Dentsply Sirona Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to introduce your host for today's conference call, Mr. John Sweeney. You may begin, sir.

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [2]

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Thank you, Kevin, and good morning, everyone. Welcome to our fourth quarter and full year 2019 earnings conference call. I'd like to remind you that an earnings call press release and slide presentation related to the call are available on 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 on certain assumptions and expectations of future events that are subject to risks and uncertainties. Our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions.

And with that, I'll now turn the program over to Don Casey, Chief Executive Officer, Dentsply Sirona.

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [3]

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Thanks, John, and thank all of you for joining our fourth quarter and full year 2019 earnings call. By almost any measure, Dentsply Sirona delivered a strong performance in 2019, both in the absolute as well as against the restructuring plan we outlined in late 2018. As we will review today, financial results were strong, and the company took important steps to create a foundation that will allow us to deliver consistent and sustainable value to our shareholders in the future.

To start reviewing the financial results, let's turn to slide decks. Revenues for the full year were $4 billion. This represents an internal growth rate of 5.7%, ahead of our long-term targets outlined in the restructuring. These results were driven by an improved approach to both innovation as well demand creation.

The recent launch of Primescan, on our newly launched Primemill, are a testament to the effort to deliver more impactful new products and execute better commercially. Solid sales growth and a sharp focus on operating discipline around expenses and head count contributed to a 310 basis point expansion of our operating margin versus prior year. Non-GAAP EPS for 2019 was $2.45, up 22% versus prior year. This performance included a $0.05 headwind due mainly to the weakening of the euro.

Operating cash flow showed a marked improvement versus 2018, up 27% to $633 million for the year. Now turning to results from the fourth quarter 2019, shown on Slide 7.

Fourth quarter revenues were $1.1 billion, up 4.8%. On an internal sales growth basis, sales increased 8.4% versus prior year. This strong performance was driven by our new product activity. Adjusted operating income margin came in at 20.2% in the fourth quarter of 2019, up 340 basis points versus 2018. This is an important milestone for the company and speaks to the execution against our restructuring plans.

Non-GAAP EPS for the fourth quarter was $0.73, up 26% versus a year ago. Operating cash flow was $299 million, up an impressive 48% compared to prior year, and reflects the focus we've been putting against this area.

I will now turn the call over to our CFO, Jorge Gomez.

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [4]

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Thank you, Don, and good morning, everyone. Don already covered the key highlights of our total fiscal year '19 financial performance. I will focus today on the results of the fourth quarter and our expectations for 2020.

On Slide 9, we show our fourth quarter 2019 P&L. Internal revenue growth reached 8.4%, driven by strong growth in Digital Dentistry and solid equipment and instruments performance. Currency was a revenue headwind of approximately 1.8%, mainly due to the strengthening of the U.S. dollar relative to the euro.

Gross profit was $642 million or 58.2% of sales, up 380 basis points year-over-year. Please note that as a result of our work with standardized policies across the corporation, we reclassified $18.1 million of expenses out of cost of goods sold into SG&A. This shift accounted for 170 basis points of the year-over-year increase in gross margin. The remaining 210 basis point improvement was primarily driven by our ongoing efficiency and portfolio shaping initiatives. SG&A totaled $419 million, and was up 5.9% as compared to prior year.

Here are 3 key components of this increase. First, the largest driver of the variance was the $18.1 million reclass I just discussed. In addition, 2 smaller drivers of the SG&A increase, where sales compensation resulting from strong sales in our Technology & Equipment segment and the timing of DS World which was held in the third quarter of 2018 and in the fourth quarter of 2019.

Operating income increased 26% to $222 million. The tax rate in the fourth quarter was higher than we anticipated at 25.5%, due to income mix variances. Adjusted EPS was $0.73, up 26% versus last year.

Moving on to Slide 10, where we review our fourth quarter Consumables segment performance. Net sales were $433 million, down 4.8% and down 3.1% on an internal sales growth basis. As you may recall, disruptions at our Venlo facility in Europe caused a shift of some revenues out of the third quarter of 2018 into the fourth quarter. Due to the more difficult comparison, we had a decline in consumable sales in Europe in the fourth quarter of 2019.

In contrast, our U.S. Consumables business grew in the quarter. Consumables operating income margin was 22.2%, up 30 basis points as compared to prior year.

On Slide 11, we highlight our Technologies & Equipment fourth quarter performance. Net sales were $670 million, up 12.2% versus prior year, representing a strong internal growth of 17.2%. This growth was driven primarily by Digital Dentistry, specifically by a strong Primescan sales. Equipment & Instruments also saw a strong growth, driven by our Orthopos new product introduction and robust sales to institutional customers. Technologies & Equipment operating income margin was 23.7%, up 820 basis points as compared to the prior year. More than half of this improvement was driven by our efficiency and portfolio shaping initiatives. The remaining margin expansion was due to Primescan sales growth and the high level of dealer destocking last year.

On Slide 12, we show our business performance for the fourth quarter on a regional basis. U.S. sales of $392 million increased 24.3% compared to the prior year and increased 27.5% on an internal sales growth basis. We experienced solid growth in Technology & Equipment and positive sales growth in Consumables.

European sales were $427 million, down 6.5% compared to the prior year and down 2.9% on an internal sales growth basis. Technologies & Equipment posted growth in the quarter. Consumables sales were down in Europe in the quarter impacted by the disruption at Venlo. Rest of the World sales were $283 million, up 1.5% and up 5.1% on an internal basis. T&E growth was solid, and Consumables growth was slightly positive in this region in the fourth quarter.

On Slide 13, we show our non-GAAP results for the full year. We are very pleased with our operational and financial performance in 2019. Overall, our financial metrics experienced a significant improvement. During FY '19, the entire organization undertook tremendous efforts to implement decisive operational and portfolio shaping initiatives.

Let me highlight some of the results from these initiatives. Increased productivity through disciplined head count management; higher production efficiency through consolidation of sites and operational improvements; centralization of direct and indirect procurement activities that create economies of scale and greater visibility; increased discipline on discretionary spending with new programs to ensure we use our scale to drive savings; rationalization of marketing and promotional spending, while increasing the effectiveness of our programs.

In terms of our portfolio shaping initiatives, in the past year, we took steps to optimize our portfolio by shedding underperforming assets and adding capabilities to drive sustainable growth. Since we announced the restructuring, we shut down our FONA business; terminated our imaging software partnership with SICAT; sold the surgical line with a well-respected business; exited the 1 (800) dentist business; and shut down a small orthodontics lab. All of these actions improved our margin profile and freed up management capacity to focus on more profitable activities going forward.

On Slide 17, we show our cash flow performance. In 2019, we made great progress in driving cash flow with operating cash flow of $633 million, up 27%, our capital expenditures were $123 million, and our free cash flow was $510 million, up 61% versus last year. This solid performance was the direct result of enhanced internal capital allocation policies and controls with a heightened emphasis on working capital and return on invested capital. During fiscal '19, we paid dividends of $81 million, repurchased shares of $260 million and repaid $201 million of total debt. Including share repurchases and dividends, we returned to shareholders over 50% of the operating cash flow generated in 2019, while sufficiently funding all of our key initiatives.

Let's go now to Slide 18, where I will talk about our 2020 expectations. I will first discuss the simplification to our revenue presentation that will make it easier for investors to understand our financial statements. Traditionally, we publish our financial results, excluding the impact of precious metals. It made sense to look at our financials this way a decade ago when precious metals accounted for about $200 million of annual sales. Today, this material account for only $40 million of annual revenues and are consequently significantly less impactful to our overall financial performance. Also, our custom has been to report internal sales growth. This metric is revenue growth adjusted for precious metals, non-GAAP acquisition-related adjustments, currency fluctuations, discontinued products and M&A.

On a going-forward basis, we will stop reporting the internal revenue growth metric and instead report a simpler metric that we will call organic revenue growth. Organic revenue growth adjusts reported revenues for currency translation, discontinued products and the impact of M&A. No other adjustments will be made to reported revenue going forward. We will begin this practice of using only reported revenue and organic revenue growth in the first quarter of 2020.

I will now address the coronavirus situation. As you are aware, the impact of the virus has expanded beyond China and is affecting other countries like Japan, Korea, Taiwan and even parts of Europe. As it is the case across all industries, our commercial operations in China, and now in all areas, are being affected by this fluid public health care situation.

During this difficult period, our priority has been the safety and welfare of our associates. At the current time, we have not experienced a significant disruption to our global supply chain due to coronavirus. However, in many parts of China, dental clinics and hospitals remain closed for business. And in other parts of the world, we are beginning to see an impact.

Given the unique situation, today, we're letting you know that China, Japan, Korea and Taiwan, represented approximately 10% of 2019 sales. While we hope the impact of the virus is controlled as soon as possible, it is difficult to estimate at this time when commercial activity, and more specifically, the dental market will return to normal levels.

We estimate that in the first quarter of 2020, we have an exposure of approximately $60 million to $70 million in sales stemming from coronavirus. Assuming activities get back to normal in April, we estimate a non-GAAP EPS impact of $0.10 to $0.12.

We acknowledge it is more difficult to forecast accurately in the current environment, and this explains the wider than usual EPS guidance range we are providing today.

With that said, these are the key elements of our guidance for fiscal '20. We expect 3% to 4% internal revenue growth. However, accounting for the potential impact of coronavirus in the first quarter, we believe growth will likely be towards the bottom end of the range. We expect roughly a $30 million currency headwind for the year.

In addition, there is a stop portion from our portfolio shaping activities of about $10 million that we expect to run off in the first quarter. That gets us to a revenue range of $4.1 billion to $4.15 billion.

Operating income margin for 2020 is expected to be in the range of 19.5% to 20.5%. We expect our effective tax rate to be between 24.5% and 25.5%. And our estimate for share count is a range of 222 million to 224 million. That brings our non-GAAP EPS guidance for 2020 to a range of $2.55 to $2.80.

Our capital allocation approach will remain consistent and we will balance reinvestment in the business with capital returned to shareholders through dividends and share repurchases. In 2020, we plan to fund approximately $150 million in capital expenditures and approximately $150 million in R&D.

To conclude, we are very pleased with the execution of our plan and the resulting financial performance delivered in 2019. As we move forward, we remain optimistic about our industry, the progress we are making at Dentsply Sirona and our ability to continue to execute our strategy consistently.

Despite the near-term challenges presented by the ongoing public health care issues, we are mindful of the targets we set, and we remain focused on achieving our objectives.

With that, I will now turn the call back to Don.

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [5]

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Thanks, Jorge. In addition to the financial results, I wanted to take a few minutes to talk about the progress against our restructuring plan priorities that included accelerating growth, improving operating margin and simplifying the organization. The targets for that plan are shown on Slide 20.

One year into the restructuring, I'm pleased to say that we are making substantial progress towards achieving our objectives and importantly, doing it in a way that creates a solid foundation for delivering those results in a sustainable manner.

Core to the entire restructuring was accelerating our growth. That growth will be driven not only by improving our innovation engine but also by bringing that innovation to market globally through an improved commercial organization.

As you can see on Slide 21, the year 2019 marked a step change in the pace of our innovation, as demonstrated in the sharply improved pipeline. R&D projects are now managed as a portfolio, allowing Dentsply Sirona to focus on the biggest opportunities and bring them to market faster. Nowhere has that acceleration has been more evident than in our Digital Dentistry group. Dentsply Sirona has an aggressive vision for how digital technology can transform the standard of dental care, benefiting both patients and dentists. A critical part of that vision starts with Primescan. This product has been extremely well received because it is so accurate, very fast and easy to use. Primescan is such a breakthrough that it allows a dental assistant to take a full scan in under a minute. It's also an open platform that can be used chairside or with major lab-based manufacturing systems.

Since launch, we have upgraded the Primescan software with CEREC 5.1 as well as adding OraCheck.

In late January, we launched Primemill, which is shown on Slide 22. This represents another major new product launch. This product is designed to save the dentist time at every step of the entire chairside procedure, and is an extremely simple to use. This mill is state of the art and really delivers a meaningful difference in speed for the dental office. Primescan combined with Primemill has really created a whole new standard of performance for CEREC. And we have seen some of the early users of the integrated system literally change how they schedule patients, as Primescan integrated with Primemill is that much more efficient, and that efficiency translates into healthier practices.

But Dentsply Sirona's digital efforts go well beyond chairside milling. A great example is SureSmile, our clear aligner. We recently launched new software that allows for treatment of Class 2 cases and new software that integrates seamlessly with Primescan. Our digital efforts extend into the imaging area, and we are seeing a good response to our Orthophos line extensions.

So taking a step back, Dentsply Sirona has a large installed base of digital scanners, imaging units and treatment centers that position the company very well to advance Digital Dentistry. From Palodent to digital dentures, to TruNatomy to Primescan, 2019 was an important year for new products, and we are poised to push the higher levels of innovation going forward.

But growth is not purely about launching new products, it is also important to have a world-class global commercial network, and that has been a critical area of focus for our organization. During the past 14 months in the U.S., we have overhauled our demand creation capabilities in a significant way. It starts with a single view of the customer, moving to a single CRM system, creating a single loyalty program for the entire company for the first time and focusing on a more impactful promotional strategy. We are encouraged by the results to date in the U.S., and we are in the process of moving that model globally.

The second major pillar of our restructuring was developing a comprehensive plan to improve our margins. A lot of those efforts involve identifying areas where Dentsply Sirona can create scale and use that scale to improve cost and efficiency. For the first time, the company, which has historically been decentralized, has begun to scale critical functions. One example of this is our consolidated supply chain organization under the leadership of Dan Key. Dan joined Dentsply Sirona about a year ago and brings world-class experience in managing scaled global supply chains. Over the past year, the supply chain organizations begun centralizing procurement, logistics, demand planning and manufacturing, and results so far have shown improved cost and importantly, improved operating efficiency. While early in the development of that organization, results are encouraging, and we are optimistic about its future.

In addition to supply chain, areas like finance, HR, QARA can all be scaled for efficiency and effectiveness. During 2019, margins also benefited from an improved discipline around expense control, as evidenced by that, that we hit our head count target ahead of schedule.

In addition to head count, the organization demonstrated excellent discipline managing cost as shown by the lower SG&A numbers. Jorge also mentioned the actions taken during the year on portfolio shaping, an area that we will continue to pursue as we look to deliver expanded margins.

Jorge and I would like to acknowledge all the work that Dentsply Sirona team did in 2019, and thank them for their consistent commitment to transforming our company. We also know that this is a multiyear plan in progress in 1 year, while encouraging is merely the first step in creating sustainable, consistent growth and value for our shareholders. But 2019 shows the organization is committed to sustained improvement, and we are optimistic about the future.

With that, I will conclude by thanking all of you for joining us today and then move on to questions. John?

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [6]

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Operator, we'd now like to open it up for questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brandon Couillard with Jefferies.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [2]

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John and Jorge as far as coronavirus is concerned, I appreciate you quantifying the $60 million to $70 million impact, is that more on the Consumables side or equipment side of the business? Is there any portion of that you would expect to recoup, perhaps in the second quarter or later in the year? And how do we think about the impact as far as 2Q goes?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [3]

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Yes. Brandon, thanks for the question. Let's start a little broader, and then we'll get into it. Look, as we look at coronavirus, we think there's a couple of things we have to look at. First, is our employees, how do we make sure that they're safe? And we've, obviously, spent a lot of time educating them, thinking about travel and a few other steps. And we feel that, again, that's our first priority. The second area, and Jorge mentioned this, was supply chain. To date, we haven't seen any supply chain disruption. And as we look out into the future, under the current scenarios, we feel pretty good that we do not anticipate disruptions to our supply chain, and we're spending a lot of time developing contingencies if there's a kind of a sea change in how countries react.

The last issue and this is what we were trying to quantify is what's going on from a demand perspective? And obviously, as we look at the quarter, China, Japan, Taiwan, Korea, and to a smaller extent, Italy, we're, obviously, seeing a dampening impact on demand creation there. And that's what we try to quantify when we offered the -- $60 million to $70 million sales number.

What we are having a harder time doing is really trying to understand what happens if there's a significant change in how countries are trying to manage this in terms of if there's a significant shutdown in border-to-border transfers and other things beyond what we're seeing today? And look, if there is a significant sea change, obviously, we will work, plan and develop plans for that. But we felt right now the responsible thing to do was to give you guys our best thoughts on what the quarter would look like and quantify what revenue impact.

And as -- look, we're smarter every single day. And in a month, we'll be a lot smarter than we are today in terms of what's going on, both in the markets that we can see and then how countries around the world are reacting to it. And obviously, as the situation goes on, we'll develop plans accordingly. And Jorge, you may want to chime in a little bit here.

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [4]

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Yes. Brandon, with respect to your question about Consumables versus technologies, to be honest, at this point, in those areas that I mentioned where we are feeling the impact, the activity have slowed down for both Consumables and T&E. So there is no one segment that has been more impacted than the other. I think the impact is similar across the board.

With respect to how much of that can be recovered down the road, no, it is hard to predict at this time. I tell you, there are constraints relative to chair time and things that we'll probably have to figure out over time as to how much of this can be recovered. But absolutely, we are working on contingency plans, and we are developing some strategies and ideas to offset some of this Q1 impact, but it's early to tell.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [5]

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Okay. And if we look at the Consumables business, you've been negative comps 3 of the last 4 quarters. Would you expect to be in that 2% to 3% range in 2020? How do you think you're performing relative to the market? And what are -- how would you characterize sort of your confidence in that portfolio returning to growth in 2020?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [6]

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Yes, Brandon. First, obviously, the quarter, Venlo created a really tough comp over in Europe. I think Jorge mentioned in his prepared remarks that we saw growth in the U.S. And right now, we feel like we're growing with the market. And when we set out our restructuring plan, we offered long-term guidance, which we said, we think that we can grow the Consumables business in the 2% to 3% range. While quarter-to-quarter, are we confident that's going to occur.

No. But we do feel that as we look out to 2020 and beyond, we've spent a lot of time working on 2 things. I mean the first is innovation and I kind of rattled off some of those in the prepared comments, if you look at digital dentures, if you look at TruNatomy, which is our Endo business, which shows up as -- in the Consumables segment. You look at things like Palodent, SureFil SDR and other things. We feel that we're starting to see a pretty significant platform of innovation, and innovation is what we need to do to provide growth.

The second thing, and the reason we separate out the U.S. a little bit, is we have put programs into place, which we believe revolve around a much more aggressive and efficient promotional strategy with things like One DS, where we're trying to leverage the power of all of Dentsply Sirona.

It's been pretty well received and we think is starting to have an impact on Consumables as demonstrated by the U.S. performance in Q4. As we look beyond our sales force effectiveness program, we're all designed to really bring all of Dentsply Sirona to a dentist in a way that it's easy to consume.

So again, we -- the guidance we put out long term, 3% to 4% for Dentsply Sirona in total, and that's coupled by Technology & Equipment segment growing a little bit faster. But no, when we put out the guidance, and we're still pretty comfortable that when we get through some of the lumpiness and things like Venlo that create tough comps for us that we are going to be able to post growth in the Consumables business.

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Operator [7]

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Our next question comes from John Kreger with William Blair.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [8]

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Jorge, just want to clarify one thing. And then in terms of how you handled guidance for the coronavirus. Is it correct that you're not factoring anything yet into the second through the fourth quarter as you're just baking in a Q1 impact, is that right?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [9]

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That is correct, John. Yes. At this point, it would be very hard for us to go beyond Q1. So that's how we have model guidance, sharing with you the impact that we see in Q1. And as you know, the situation is fluid, it's changing day by day. And we will be back together in a few weeks to talk about Q1 results. And at that point, we will have a much better point of view with respect to future quarters.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [10]

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Okay. And then, Don, can you maybe just run through how your various specialty product lines are doing, implants, ortho and endo?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [11]

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Yes. Thanks, John. We're -- we don't give a lot of specificity around how each of those businesses are doing. But let's put it this way, our implant business is, in our opinion, a missed opportunity. It's basically flat this year. We have a quarter where it's up, a quarter where it's down. In my mind, what we have to be doing with that business is growing at the pace of the category. And we feel that we've started to put the plans in place.

A couple of things of note. I mean we really felt that our portfolio wasn't where it needed to be. We didn't have an immediate load product. And now that we have asked our EV in there, we feel pretty good that we're competitive.

One of the things we've also been doing is taking our MIS business and really integrating that into the portfolio, which we think makes us more competitive particularly in the DSO space. So implants to me, it's an okay performance. It's a disappointment that we're not growing with the market. Endo, for us, has been somewhat of a disappointment. Endo for us is obviously a big business and it's very, very important to us.

I think the -- what we've been focusing on is restarting that innovation engine that, in my opinion, we really hadn't -- after the ProTaper Gold and other launches, we really hadn't been as quick with follow-ups. We're very happy with what's going on with TruNatomy. It's basically the first new product and kind of new treatment modality that's been launched in the space in a while. It's all about dental preservation. And look, if you're thinking about endodontics, the idea is how do you preserve teeth and we believe TruNatomy gives us a really good competitive story. And by the way, it's a story that is -- allows our reps, which we believe are very well-trained from a clinical perspective to talk about a clinical story. And we're pretty optimistic about what we have in our pipeline as we look out into the future in the endo space.

Ortho, in our mind, it's all about the clear aligner. We have this kind of funny dialogue, which as you guys don't mention SureSmile, and that's one of the reasons for that is we're trying to say, hey, what's material in terms of creating movement for total Dentsply Sirona?

But we're very happy with where we are with SureSmile, just came off a big convention this last week, well attended, where we're really talking to our power users. And we feel that we're starting to see good momentum. I mean one of the things we are very happy about, particularly in the U.S., was after the One DS program launch and really talking about Primescan and SureSmile and One DS. We created a pretty good opportunity for a lot of our Siro doctors to participate in SureSmile and we're starting to see some momentum there. So we're very comfortable with where we are with clear aligners, and we look forward to that becoming a significant growth engine for the company in the future.

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Operator [12]

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Our next question comes from Nathan Rich with Goldman Sachs.

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Nathan Allen Rich, Goldman Sachs Group Inc., Research Division - Research Analyst [13]

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Don, maybe just following up on your last comments there. Can you maybe talk about the performance of One DS in the quarter? And what has the response of the program been like so far? How are practices sort of responding with incremental purchases? And then as we think forward to 2020, how should we think about the contribution from this program?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [14]

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Yes. Nate, thanks for the question. One DS, we felt pretty good about -- obviously, we launched that at DS World. We had a very strong initial response. As a matter of fact, we like the response and enough that we basically said, "Okay, how do we carry that program into 2020?" We made a few tweaks to it. So we actually have One DS 2.0, which makes things simpler. There's less like category requirements.

We think it's one of the drivers of the positive results we saw, particularly in the U.S. in the fourth quarter. We look forward to running that program around the world. Obviously, there's a lot of work to do in different countries. I mean the U.S., we've spent over a year, getting the sales force effectiveness program in place.

But look, I would tell you the way that we believe that we have to deliver Dentsply Sirona to the dentist is as Dentsply Sirona, not as, a, we're here to sell you in Orthophos. And Nate, if I -- we're not to quantify specifically, this is the number of doctors and this is the amount that they were buying. But we've been -- remember, One DS is a multiyear program. It's a -- there are things available in 2019, 2020 and 2021 that gives the dentist an opportunity to lower the price of their technology and equipment over that time period based on their purchases.

The thing that I think was a little misconceived about what One DS was they had to buy incremental product to their practice. And we were never saying that. What they have to do is buy incremental Dentsply Sirona products for their practice, and that's a key differentiator. So if a practice is buying $100,000 worth of Consumables, we weren't asking to buy 105 or 110. What we were asking them to do is switch share. So chances are you're already buying things in categories we participate, just gives you a great opportunity to participate in a great loyalty program if you switch some of that $100,000 from where you may have been spending it to spending it on our products. And given the amount of innovation we put in our Consumable business, pretty much in the back half of last year and the first half of this year, we think that's a win-win for the dentist than us.

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Nathan Allen Rich, Goldman Sachs Group Inc., Research Division - Research Analyst [15]

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That's helpful. And then maybe just a follow-up on margins. Obviously, coming off of a year where cost savings kind of ran ahead of your initial plan going into 2019. Could you maybe just talk about what you're assuming in terms of incremental savings you think you can kind of go after in 2020? And just the pacing, over the next several years of capturing that additional 115 to 140 that's left in terms of that restructuring target that you played out?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [16]

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Nate, I'll take that question. Clearly, we had a good performance in '19. We achieved savings of about $88 million in '19. And we have a number of initiatives in motion already that make me feel good about the fact that we are on track to deliver the total savings we have projected of $200 million to $225 million by the end of 2021. So I expect that the balance of this program will be executed roughly half and half over the next couple of years, probably we'll do a little bit more in '20 than in '21. And we have a lot of opportunities still that we have -- that we are going after. We have programs around procurement, both direct and indirect materials. We will still have opportunities for consolidation of facilities and overall consolidation of our footprint around the globe.

There is one area that we are going to tackle pretty decisively this year, order to cash. So we have opportunities there. And then, although we've done a lot of work centralizing activities within the company, across the company, I believe we still have opportunities to centralize even further. So good progress, and we are very much on track to deliver the $200 million to $225 million by the end of '21.

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Operator [17]

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Our next question comes from Tycho Peterson with JPMorgan.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [18]

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Don, I want to -- you highlighted the combination with Primescan. Can you talk a little bit about how you think about this driving a CEREC upgrade cycle? Any numbers you can provide on how much of the installed base you think could turn over an upgrade in the next year?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [19]

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Tycho, you broke up right in the first sentence. So why don’t you...

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [20]

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Yes. Yes. The question was on Primemill combined with Primescan and the potential to drive a CEREC upgrade cycle? And how much of the installed base you think could upgrade over the next year?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [21]

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It's interesting, Tycho. I mean and you followed the Sirona stock and you've followed us for a long time. So traditionally, you'd see an upgrade cycle where we come out with a product, and within 3 months, we'd be out doing the upgrade. And in a lot of cases, that worked out really, really well. Where we were on Primescan was we really felt we were selling full side units, and it was appropriate for us to stay focused on that. We launched the upgrade program a little later in the cycle than we would typically, and we had a good response. But so far, we haven't seen a dramatic acceleration versus what we would see historically. It's kind of like we just picked it up and we moved it.

I think with Primemill, Tycho, the reaction from the installed base has been really, really positive. I mean, they -- again, it's the first mill we've launched in about 7.5 years. And then this thing really -- it's quick, and it has immediate tangible benefits to the office. So we look at Primemill as a real opportunity to continue seeing a very positive trends from an upgrade perspective. We also think the story, when you put this thing together, is you're talking about dentistry in under an hour. And that's a big story for us. So we would like to see growth come from 3 things. I mean the first is how do we sell new full chairside units on the basis of this integrated system as transformative to the dentist practice. The second is how do we continue the upgrade cycle? And for perspective, we haven't run Primescan upgrades around the world yet and at some point we'll do that. And with Primemill, we believe that gives us a real jump-start there. And the third is an area that we don't necessarily talk about with mill but in DI, I mean, that's become a really important area for us. I mean, historically, we were only interested in focusing on chair side and a change that we've made over the last 1.5 years is we believe that we need to be competitive in the DI space, and we feel that with Prime, we're doing a good job on that. But in terms of numbers, Tycho, to date, if -- and again, you've seen cycles before. It's -- the penetration change -- the penetration of upgrades is not different than what you've seen, but you probably need to adjust how rapidly we did it in the past versus here, we were a good 6.5, 7 months later.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [22]

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And then a follow-up on SureSmile, a couple of things. You'd mentioned in the past for One DS, that's the easiest product for SureSmile. So have you actually seen adoption and uptake from the One DS loyalty program for SureSmile? And then can you talk to some of the market development efforts you're undertaking as you're rolling that out more broadly? And then lastly, any updated thoughts on some of the DTC providers moving into the ortho channel for clear aligners?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [23]

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Yes. Let's unpack a couple of things there. Yes, One DS absolutely drove some SureSmile trial. And the idea was to -- again, if we're going to offer a relatively significant opportunity for them to save on their Technologies & Equipment business -- and we're actually, by the way, asking them to perform as opposed to just giving them a price discount. SureSmile, you buy 2 SureSmile trial kits and you've basically fulfilled your obligation. And we got really good positive reaction to it. The level of integration, Tycho -- and you've seen SureSmile. I mean, literally, it's a button. I mean it's an app. That is a button where you're getting instantaneous treatment planning right there. And it works really, really well.

The challenge for us, and one that we're pleasantly, I wouldn't say surprised, we expected it, but we're happy with is the conversion. I mean once the docs who have had great experience with Primescan understand how to use it, we're seeing improved penetration.

Now in our mind, first, we have an opportunity to push that around the world, which is important to us. The second is, as we enter this space, one of the things we think it's important to do is provide the dentist with kind of the direct-to-consumer tools that they need. And by the way, we're always about supporting the dentist in those activities as opposed to us going out and trying to create an independent consumer brand around SureSmile. And the reaction we've been getting from our doctors, they're pretty comfortable with that.

And just the last issue in terms of some of the DTC-oriented brands coming into the more clinical space. I'm sure that they have data that says that's a good idea. We're pretty comfortable that the dentist that we talk to in our environment, whether they're the orthos or whether they're the general practitioners are pretty comfortable with the approach we're taking and like having a doctor brand that starts with the dentist and stays with the dentist. So we'll -- we're very happy with our chosen channel strategy.

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Operator [24]

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Our next question comes from Steven Valiquette with Barclays.

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Steven James Valiquette, Barclays Bank PLC, Research Division - Research Analyst [25]

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Don and Jorge, so I know company executives love it when analysts do back of the envelope math during the conference call. So I have just 1 or 2 math questions for you. First, the $0.10 to $0.12 expected EPS reduction in 1Q '20 around coronavirus. That implies about a 40% net after-tax margin on $60 million to $70 million of reduced sales. So I guess the question around that is, if nothing really improve for the remainder of calendar '20, whatever the overall sales impact may be from coronavirus in 2020 overall, should we assume the same roughly 40% net margin on whatever loss sales you may have? Or would you be able to pull some levers to reduce some cost to mitigate the EPS impact if this becomes an extended duration situation?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [26]

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Thanks. Yes. No, your math is -- your back of the envelope math is pretty close. And we are already thinking about levers that we can pull in order to offset some of the potential impact from the drop-through of loss revenue. So a lot of things going on.

And my expectation is that at the next call, we will have a much better view for that. But we are absolutely working on those plans. And our expectation is we are not giving up on this revenue impact that we have in Q1, and we'll try to recover some of that margin. And there is a few things that we are contemplating right now. So that's absolutely the intention from the company to offset some of this margin.

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [27]

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And just...

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Steven James Valiquette, Barclays Bank PLC, Research Division - Research Analyst [28]

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Okay. And one other quick math question. Oh, sorry, go ahead?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [29]

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Yes. No, I was just -- I say, it's kind of hard for us to, okay, what is the second quarter, third quarter. Obviously, if this becomes an extended duration situation, you -- we then change gears pretty significantly in terms of how we look at cost savings. And some of the work we did in 2019, really, our understanding of what our levers are, are much better today than they were, say, 14, 15 months ago. But I cut you off Steve. What else did you want to ask us?

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Steven James Valiquette, Barclays Bank PLC, Research Division - Research Analyst [30]

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Yes. One other quick math question. The -- so if Dentsply Sirona is doing, call it, roughly $1 billion in quarterly sales. And as you stated, 10% of revenues are roughly $100 million of revs are in the 4 Asian countries you mentioned earlier on this call.

I mean obviously implies that the $60 million to $70 million sales reduction, you're wiping about -- wiping out about maybe 60% to 70% of the sales in those 4 Asian countries. Just want to confirm that the sales reduction, is it primarily in those 4 Asian countries? And maybe only a little bit in Europe and really nothing in the U.S.? Or do I have the allocations wrong as far as how you're thinking about it by the regions?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [31]

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No. The $0.10 to $0.12 or the $60 million to $70 million revenue risk that I highlighted is exclusive for those -- to those countries. So it's China, it's Japan, it's Taiwan, it's Korea. We are not including any impact for European regions at this point or the U.S. for that matter, because we haven't seen that impact in those places. So it's only Asia in the countries that I listed.

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Operator [32]

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Our next question comes from Erin Wright with Credit Suisse.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [33]

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A follow-up on SureSmile here. I think you recently updated or upgraded the platform for SureSmile. Can you speak to the latest SureSmile update as well as the percentage of ortho cases that you can address now versus what you could do previously? How does this expand the addressable market for you? And will this be meaningful from a financial contribution standpoint?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [34]

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Yes. Thanks, Erin. With the most recent software update, and I forget the exact whether it's 7.6 million or 7.7, it gives us Class 2 treatment capabilities, which we think is very, very important for us. Do I think it's significant? Yes, I do.

Look, everything we're focusing on right now is to make sure that the SureSmile offers the dentist a very, very complete package. And look, we feel very good right now that our treatment planning is extremely well received by customers. And the dentists are finding it increasingly easy to use with the expansion of treatment to Class 2, the expandable universe gets pretty big. I mean it's like 65 to 75, depending on whether you're talking adult or more pediatric indications. And in our mind, again, the biggest space that we're seeing use right now is tends to be in the adult aesthetic arena, which, right now, we feel that we're extremely competitive in terms of being able to offer treatment solutions, Class 1, Class 2 with adult aesthetics in mind. So yes, we think it's going to be significant. It makes us very competitive, and we're gratified that we got it.

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [35]

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Next question please.

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [36]

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Erin, did you have a follow-up? I mean John...

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [37]

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I did have a quick follow-up, if that's okay.

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [38]

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Sorry. Sorry, Erin.

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Erin Elizabeth Wilson Wright, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [39]

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I just wanted to understand a little bit of the quarterly cadence here for the equipment trend. If you exclude kind of the coronavirus, we do have a lot of events that happened like DS World and the Primemill launch and other product launches. Just on an underlying basis, if you could speak to that quarterly progression of the underlying equipment trend, that would be helpful. Excluding corona?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [40]

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Let me start. So first, let's talk about fiscal '19, right? So you're correct. There was a lot of moving pieces in '19 relative to dealer destocking and launches and other things. But when you peel back the onion and look through the numbers, our growth rate for technology and equipment in the third quarter, the fourth quarter of 2019 was very strong. And as we go into the fiscal 2020, the momentum for the equipment business is very good, the continuation of Primescan sales, the launch of Primemill. So we feel good about the progression of our sales growth in Technology & Equipment going into '20, building on the momentum we started in fiscal '19.

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [41]

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Yes. And Erin, just to amplify what Jorge is saying. Typically, you would do a one -- you would do the DS upgrade, the CEREC upgrade in one shot all around the world because that is not a lever that's been pulled yet. And with Primemill, we think we've got, as Jorge said, a lot of momentum there.

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Operator [42]

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Our next question comes from Glen Santangelo with Guggenheim Securities.

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Glen Joseph Santangelo, Guggenheim Securities, LLC, Research Division - Analyst [43]

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I just want to follow-up on Primescan a little bit. Don, maybe can you give us a sense for your sales in terms of how they're trending, in terms of what may be considered an upgrade versus what may be considered a brand-new CAD/CAM sale? And I'm trying to sort of compare or contrast the experiences you had with the Bluecam or the Omnicam upgrade cycles, just to get a better sense for how we should think about the sustainability of this current trend?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [44]

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Yes. Glen, you could have gone C2 and Redcam and Bluecam. I mean if we're going to go to hold school. Look, Primemill, the way we're looking at it is that the percent of current users that are upgrading is not been all that different than what we've seen in the past. What we're seeing, it's just later. So typically, if you go back to Omni and you go back to Blue, the upgrade cycle was usually within 3 months and this time, it was 7. By the way, those were global upgrades. This was a U.S. upgrade. So as we think about it, we're not sure the trend line is dramatically different. We've been very gratified by it. And we think we've got a great product. We charge a premium for it. We think with Primemill and the opportunity to potentially do the upgrade beyond the U.S. now that we feel very good about our supply chain, we think that, that should give us a fair amount of momentum as we run into 2020.

And then for us, the things that we're counting as upgrade is if you purchased a CEREC system in the past, any CEREC system, we consider that an upgrade. DI, if you're just basically buying the acquisition unit and scanner and haven't bought something from us in the past, that's new. Or if you've never bought, whether you're buying DI or whether you're buying full chairside. And we've been -- we believe we've expanded the CEREC franchise with the introduction of Primescan.

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Glen Joseph Santangelo, Guggenheim Securities, LLC, Research Division - Analyst [45]

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Maybe if I could just follow-up with Jorge on the margins really quickly. Jorge, in your restructuring plan, you have a target of about 20% EBIT margins by the end of this year and your guidance today suggests 20% EBIT margins for the full year, which maybe suggests kind of a flat trend throughout the year. Could you help us think about maybe some of the puts and takes on that -- on the profitability and the trajectory as you go through the year?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [46]

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Yes. Glen, I would not characterize it as flat. I think, as you probably remember from prior cycles, each quarter is a little bit different. But as we have modeled our budget and our plans for 2020, there is a continuation of the ramp that we saw in 2019. We've finished at about 18.6% for the year. Our Q4 was very strong over 20%. But Q4 is typically a very, very strong quarter.

So while I look at the cadence going into 2020, there will be natural fluctuations given the typical quarterly cycles. But overall, I see a trend line that is pointing upwards, getting to the 20% and trying to set up the year for the future so that we achieve the target, long-term targets that we have for operating profit.

So some variability between quarters, but net-net increasing between the first quarter and the fourth quarter of 2020.

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Operator [47]

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The next question comes from Jon Block with Stifel.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [48]

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I'll keep it to one in the interest of time, but of course, that one will have 2 parts. So I guess, first one, Jorge, can you just level set for us on Venlo, so we can get the underlying trend? I think there's a lot of questions out there. And when we look back to last year with $25 million to $30 million impact in 3Q '18. And if so, did you get back about half of that in the fourth quarter of '18, so we can think about the comp? And then part b, would just be, Don, on a higher level, what gives you the confidence in the 2% to 3% long-term Consumable number? Is it innovation? Is it market share gains? Is it One DS? Just maybe if you can detail for us what drives, call it, that modest acceleration of the '19 numbers?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [49]

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So let me start with the first part of your question. So the way we're sizing the Venlo impact, our number is about $20 million. That was the impact that we have in our numbers. And I think it's fair to say that we recovered most of that impact. Don?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [50]

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Yes. And Jon, good single question with 2 completely different parts. But on the Consumables side, look, we think, basically, we should be able to gain share in -- across our business. If you really break down what is our Consumables business, there's 4 different pieces to it. It's preventive, it's restorative, obviously, our Endo business and our Lab business, we feel that the Preventive and Resto business has been chugging along nicely. We'd like -- we think that TruNatomy and some other innovations that we have should enable us to reignite growth in the Endo business. By the way, the Endo business ex-U. S. has tended to be stronger than in the U.S., just as a point of reference.

And last point is the Lab business, not a business. We talk a whole heck of a lot about we think with digital dentures and some other steps that we've taken, we think that is an opportunity to expand share. So when we say the 2% to 3%, in our mind, it's new products. When we launch the new products, we -- if we can do it, we want to get a premium for it, and that's going to help us gain share.

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Operator [51]

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Our next question comes from Steve Beuchaw with Wolfe Research.

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Stephen Christopher Beuchaw, Wolfe Research, LLC - Director of Equity Research [52]

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I know you guys are just about out of time, but it would really help, Jorge, actually. If you could help us with something of a free cash flow bridge for 2020? Can you put a view out on free cash in dollar terms or conversion? And then just give us something of a minor look, how are you thinking about the impacts of, particularly, working capital and CapEx next year? And then I'll drop back out.

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [53]

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Sure. Steve, let me give you a couple of data points, and there are some that we have not included in our guidance. But starting with capital expenditures. So we believe that -- or we're targeting a capital expenditure number of about $150 million for fiscal '20. That is slightly higher than what we did in fiscal '19, but we believe is a prudent amount of investments to make in the business.

I would expect our cash flow generation in general, both operating cash flow as well as free cash flow to continue to trend in a positive way. We had a very strong free cash flow of over $500 million in '19. And given the trajectory of our earnings, the work that we're doing on working capital. For example, in '19, we brought down inventory by a significant amount. And I believe we have more opportunities there. I would expect that good working capital performance in '20 as well. And so the trends for operating cash flow and free cash flow should be consistent with what we experienced in '19. Obviously, all of this is subject to what happens with coronavirus. And based on the impact in Q1, I don't see any impact to our cash flows. When we close the quarter, and we talk next time, and we have a better visibility for the rest of the year, we will update this commentary as necessary.

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Operator [54]

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Our next question comes from Kevin Caliendo with UBS.

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Kevin Caliendo, UBS Investment Bank, Research Division - Equity Research Analyst of Healthcare IT and Distribution [55]

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I guess, a question about the cost savings and margin expansion going forward. If you think about where you started, where you are today between -- you went through and gave you some details on the cost savings, but there has also been improvement in the overall operations, in margins there, and there's also been some portfolio reshaping. As we think about getting from here through the end of, say, '21 or '22, what will be the biggest impact on margins going forward compared to sort of what we've accomplished there? What you've accomplished over the last 12 to 15 months?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [56]

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Yes. The way I see it, I think, is well balanced. So I think the first source of margin improvement will continue to be our top line. So in '19, we benefited significantly from the increased level of sales, driven by technology and equipment. As we look in our guidance for 2019, a 3% to 4% top line growth, that is going to have a pretty substantial drop to the bottom line.

Then from a gross profit perspective, we're doing a lot of work on pricing, and we should expect to see some benefits there. The procurement side, as I indicated in my prepared remarks, we have opportunities from a direct materials cost perspective, manufacturing efficiencies. So there are some -- in our plan, we're contemplating improvements to our COGS as well.

And then from an SG&A perspective, the initiatives that I mentioned before in terms of order to cash, consolidation of certain activities, that will contribute to our benefits.

If I look back historically the last couple of years or 18 months, the [VAXA] benefits have come from both the gross margin side as well as the SG&A side has been pretty balanced. And I believe that, that combination will continue into '20 and '21.

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Kevin Caliendo, UBS Investment Bank, Research Division - Equity Research Analyst of Healthcare IT and Distribution [57]

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Great. And one quick one on SureSmile. With the software update, are you able to do the sort of before and after when somebody comes in and gets a scan, showing what -- where the teeth look like now? And what they might look like at the end of a treatment protocol? Are you able to do that now?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [58]

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Yes, absolutely. And I'll tell you, one of the things that we feel, long term, will be a competitive advantage for us, is the fact that our treatment planning is really quick, really easy to use and what the dentists are telling us, they have a lot of confidence presenting it to the customers. We're just coming off a big SureSmile event this weekend. And the amount of change that we've made in upgrading the interactivity and the ease of use has been remarkable on people who have been with us for a while.

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Operator [59]

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Our next question comes from Jeff Johnson with Baird.

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Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [60]

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Two quick ones. One, I guess, Don, just looking at 2020 look forward and then one question looking back. In 2020, 9% growth in the U.S., 27% in the fourth quarter. Is 2019 the year of the U.S. growth? And we need to think about U.S. tougher to grow against those comps in Europe and Rest of World really driving 2020? Or just how to think about kind of the geographic split?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [61]

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No. I actually think the U.S. is going to be pretty darn important to us, and we want to see that growth continue. Obviously, you got to look at inventory burn and a few other things there, Jeff.

I would tell you, I would expect U.S. to be among the front in terms of the growers. We're very optimistic as we pull a couple of levers on Primescan, whether it's One DS, whether it's upgrades, rolling our Primemill and really pushing the SFE program beyond the U.S., We've got Germany, China, Japan, targeted for that activity.

This year, where -- that gives you the base to launch One DS. So we -- we're expecting a good strong year in the U.S., and we think as we put the programs into place, get the rest of the innovation, we'd like to see balanced growth. Europe cleans up a little bit. Remember, once we get out of the Venlo comps, we think we can grow Europe.

But no, I wouldn't read this as the Rest of World picks up, I would like to think balanced with the U.S. still being strong.

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Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [62]

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All right. That's helpful. And then just in the fourth quarter, from a revenue perspective, I think you beat the high end of your guidance by about 300 basis points. You're at the midpoint or slightly below from an EPS perspective, what was the lack of flow through in the quarter from a profitability standpoint? And maybe if you could tie that back to One DS? Is it just a lot of promotional activity there with some of the rollout of One DS? And do you think the returns on that program, even if it's helping the line? Or where you need them to be at this point?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [63]

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Yes. In the fourth quarter, we -- our SG&A number was elevated relative to the trend that we were having. And so that had an impact on the bottom line. And as I indicated in my prepared remarks, we had a reclass of $18.1 million in SG&A. We had also -- because of the strong sales we had in the fourth quarter, we had an elevated amount of sales comp and incentive compensation, in general. We also had -- there was the timing of DS World. As you remember in 2018, that event happened in the third quarter. And in 2019, we had the event in the fourth quarter. So that also created a little bit of a headwind from an SG&A perspective in Q4. And there were some other investments in some of our key initiatives around digital transformation and a couple of other programs that had a pretty significant amount of spend in the quarter as we had planned. So all of those things combined resulted in a lower than you would have expected operating margin, given the beat on the top line.

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Operator [64]

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Our next question comes from Elizabeth Anderson with Evercore ISI.

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Elizabeth Hammell Anderson, Evercore ISI Institutional Equities, Research Division - Associate [65]

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Can I -- in terms of the portfolio shaping impact, I know, Jorge, you said there'd be a $10 million impact on the first quarter. Can you talk about where you sort of feel like you are with that? I mean, obviously, you've done a lot of the heavy lifting there. But in terms of the impact on how to think about the rest of the year?

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [66]

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So the -- my comment was mechanical with respect to how the activity that we did in '19 impact the run rate in '20. And at that point, we will lap that impact in the first couple of quarters of the year. Beyond that, we don't have anything right now that has been executed. We, obviously, from a portfolio shaping perspective, remain very active and always contemplating new opportunities for us to improve our growth rate and our margin rates. But there is nothing beyond that $10 million that I mentioned when I provided guidance.

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Operator [67]

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Our next question comes from Michael Cherny with Bank of America.

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Allen Charles Lutz, BofA Merrill Lynch, Research Division - Associate [68]

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This is Allen Lutz on for Mike. Regarding coronavirus, have U.S. dentists made any change to their purchasing patterns that are worth calling out? For example, on masks or anything like that?

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Donald M. Casey, DENTSPLY SIRONA Inc. - CEO & Director [69]

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Yes. Allen, we don't sell masks, so we really can't comment on that. And to date, we really haven't seen any impact in the U.S.?

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [70]

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Operator, we'd now like to wrap it up, please.

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Operator [71]

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Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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John Sweeney, DENTSPLY SIRONA Inc. - VP of IR [72]

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Thank you. Goodbye.

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Jorge M. Gomez, DENTSPLY SIRONA Inc. - Executive VP & CFO [73]

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Thank you. Have a good day.