Good day, ladies and gentlemen, and welcome to the Q4 2018 Dentsply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded.

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

Thank you Kevin and good morning everyone and thanks for joining us today. Welcome to our Fourth Quarter and Full Year 2018 Conference Call. I remind you that the earnings press release and slide presentation related to the call are available on our website at www.dentsplysirona. com.

Our earnings call presentation and any of the numbers discussed today will be non-GAAP financial measures and there are reconciliations provided in our press release and in our earnings deck. But before we begin please take a moment to read the forward-looking statements in our earnings press release.

During today's conference call we'll make certain predictive statements that reflect our current views about the future performance and financial results and we base those statements on certain assumptions and expectations of future events that are subject to risks and uncertainties.

Our most recent Form 10-K and Form 10-Q lists some of our most important risk factors that could cause actual results to differ from our predictions. And with that, I'll now turn the call over to Don Casey, Chief Executive Officer of Dentsply Sirona..

Thanks, John, and thank all of you for joining us on our earnings call. To start, I wanted to take a minute and provide some perspective on the year we just completed. Looking back at 2018, while our financial results were clearly disappointing, we have taken important steps to put the Company on a better path.

To improve our performance and deliver consistent growth, we completed an in-depth analysis of the dental market, our Company and the areas we need to improve on going forward. Based on that analysis, we announced a comprehensive restructuring program in November and have worked aggressively to deliver against that plan.

We strongly believe that executing against the road map we've laid out will better position Dentsply Sirona to deliver for our customers, partners, employees and shareholders. On this call, we will discuss our performance in 2018, provide guidance for 2019 and update you on the progress we are making against our restructuring plan.

Let's start by looking at our performance for fiscal year 2018. As you can see on Slide 6, odds [ph] in our dealer inventory in our Technology & Equipment segment, this revenue decline was significant, saw relative stability on the Consumables side.

Our lower top line and margin pressure drove an adjusted operating income margin of 15.5% and adjusted EPS of $2.01. Operating cash flow was $500 million during the year, reflecting the strong underlying cash flow generating capabilities of Dentsply Sirona.

Turning now to the fourth quarter of 2018 on Slide 7, revenues were $1.05 billion, which were about flat on an internal basis. We achieved this level of revenue performance, despite the substantial dealer destocking that we experienced during the quarter.

Adjusted operating income margin came in at 16.8%, down 510 basis points compared to the prior year and adjusted EPS was $0.58. With that, I will now turn the call over to Nick Alexos , who will discuss the financials and outlook for 2019.

Nick?.

Thank you, Don. And good morning, everybody. We announced that we will be filing our 2018 Form 10-K after today's deadline. We needed additional time to review the accounting results and related internal controls of a business that is being shut down as part of our portfolio shaping initiatives.

The discontinued business is immaterial to our consolidated net sales and we anticipate filing our Form 10-K next week. If you go to Slide 9, we report across two segments, Consumables and Technology & Equipment.

Our Consumables segment accounted for 45% of our revenue for the fourth quarter and represents a diverse portfolio of products that provide steady growth at stable margin. In Q4, Consumable revenues were $476 million, up 3.4% compared to prior year, and up 5.4% on an internal basis.

Consumable revenue growth was partially driven by recovery of the operational issues at our European Distribution Center in Venlo, the Netherlands. This important distribution facility is now more effectively serving our customers in the European markets.

The increased overall Consumable revenue performance also drove Consumable segment margins up 85 basis points, as compared to the 2017 fourth quarter. If we go to Slide 10, we highlight our Technology & Equipment segment, which accounted for 55% of revenue in the fourth quarter.

Our T&E segment has numerous unique equipment technologies and includes our implant and Wellspect HealthCare businesses. Q4 T&E revenues were $574 million, down 7.5% versus prior year and down 4.1% on an internal basis.

In this segment, we had planned for and previously discussed, some significant revenue reductions during the year due to dealer inventory destocking. We had $31 million of dealer destocking in the fourth quarter as opposed to $21 million of stocking in the prior year fourth quarter for a net reduction in year-over-year revenue growth of $52 million.

Excluding the stocking and destocking in both years, T&E would have posted 4.3% growth in the fourth quarter of '18. We are encouraged by the level of end user retail equipment sales that we have seen in the marketplace, particularly in the US.

In the quarter, we also had positive year-over-year growth in implants and our Wellspect HealthCare business saw solid growth up mid-single digits. Technology & Equipment operating margins were 9.7%, as compared to 21.6% in the prior-year quarter. The significant margin compression was a result of the following factors.

Net inventory destocking reduced the T&E margins by 500 basis points; product mix and pricing, particularly in our imaging business reduced margins by an additional 600 basis points; businesses that are part of our portfolio shaping in the fourth quarter, reduced our margins by 200 basis points.

These were partially offset by savings from our cost reductions and that with some other - 00 basis points on our margin, making up the margin differential. Slide 11 goes through our regional performance.

As you can see, US revenues were $310 million, down 15% compared to prior year and down 16.3% on an internal sales growth basis in the quarter, mainly due to the inventory destocking in our Technology & Equipment businesses.

In addition, we saw declines in our Consumables business in the US, due to a difficult prior year comparison as the prior year quarter benefited from a pull forward of revenues from Q1 of 2018. European revenues were $457 million, up 4.6% compared to a prior year, and up 8.7% on an internal growth basis.

This was driven to some degree by strong consumable sales and also as a result of the recovery from the Venlo distribution center. And in addition, there was some strong benefit in our treatment business in Europe. Rest of world revenues were $283 million, up 1.4% compared to prior year, and up 7.1% on an internal basis.

As you can see, our global platform allows us to benefit from faster growing international markets. Slide 12 is our financial summary on a non-GAAP basis. Revenues excluding precious metals were $1.050 billion, down 2.7% in the fourth quarter, but roughly flat on an internal growth basis.

Once again, the fourth quarter of 2018 had a $52 million year-over-year net stocking, destocking equipment effect. So excluding this factor, total revenues would have increased by 4.7% on an internal basis. Gross profit was $571.7 million or 54.4%, down 370 basis points as compared to the prior-year.

Pricing pressure, negative mix, particularly in our imaging business, have reduced our margins by 230 basis points. In addition, we had 80 basis points negative impact from our equipment inventory destocking and 40 basis points of margin reduction due to businesses that are part of our portfolio shaping initiatives in the fourth quarter.

Total operating expenses, which include R&D were $395.6 million, up 1.2%, as compared to the prior year or 4.3% on a constant currency basis. The higher SG&A costs were principally due to restructuring and investments and expenses related to the build-out of our new organization and additional R&D expenses ahead of the IDS in March.

Adjusted non-GAAP operating margin declined to 16.8%, down 510 basis points year-over-year, as a result of our lower gross profit margin and increased SG&A expenses. We did achieve $70 million of cost reductions during the year and anticipate that the balance of our targeted savings will flow into our newly announced restructuring program.

Q4 adjusted EPS was $0.58, down from $0.82 in the prior-year quarter. Slide 13 is our cash flow for Q4 2018. Cash flow from operating activities for the quarter was $202.1 million, down 11.7%. We had capital expenditures of $52 million in Q4, resulting in a free cash flow of $150.2 million.

Our 2018 free cash flow finished quite strong, with a $63 million contribution from lower inventory levels that we achieved during the fourth quarter of 2018. I would note, that with this reduction, we far exceed our inventory goals for 2018.

For the full-year 2018, the Company achieved operating cash flow of approximately $500 million and free cash flow after CapEx of $317.2 million. As we look forward, we continue to have incremental opportunities to drive strong cash flows and anticipate taking additional cash flow out of our working capital in 2019. Moving on to guidance on Slide 14.

Our reported revenue guidance for 2019 is a range of $3.95 billion to $4.05 billion. This reflects an underlying internal growth rate of 4% to 5% over 2018. It should be noted that there are about $70 million of revenue in 2018 that will not reoccur in 2019, due to our portfolio shaping initiatives.

Furthermore, foreign exchange will have a negative impact on 2019 revenues of 2.5% or $100 million, assuming current rates for the remainder of the year. Once again, 2018 dealer destocking was a $100 million headwind to 2018 revenues. A recovery from the 2018 destocking is expected to favorably impact 2019 by 2.5%.

Longer-term, we anticipate achieving a 3% to 4% internal growth rate consistent with the target provided as part of our previously announced restructuring plan.

Our adjusted gross profit margin will improve from roughly 56% in 2018 to about 57% in 2019, reflecting higher revenues, savings from restructuring initiatives, portfolio trimming, and a positive FX impact. We expect to achieve 2019 operating expenses below last year, as we committed to you in our prior earnings call.

Our 2019 guidance also reflects restructuring expected recurrent savings of approximately $60 million and one-time restructuring expenditures of $120 million in cash.

Taking the 100 basis points of gross margin improvement plus the net operating expense leverage versus revenue growth, we anticipate an operating profit margin in the range of 17% to 18% for the full-year 2019, as compared to 15.5% for 2018. Our tax rate assumption for 2019 is 22.4%.

And adding all this together, brings us to an adjusted EPS guidance for 2019 in the range of $2.25 to $2.40[ph]. With respect to the quarterly phasing in 2019, one key factor is the Biannual International Dental Show, IDS, which is held this March.

In IDS years we typically see a slowing in our Q1 revenue growth, as dentists hold off their purchases until the show. As a result, we anticipate lower revenue versus prior year in the first quarter, ramping up as we move through the second and third and fourth quarters of the year.

Gross margin is anticipated to be lowest in the first quarter, due to the timing of shipments and the timing of our restructuring savings, both of which will accelerate through the year. SG&A will also be higher in the first quarter of 2019. This is a result of the timing of expenses related to the IDS and investments in new products.

We anticipate the benefit of our restructuring savings to positively impact our SG&A levels as we move past the first quarter. Overall, I'm pleased with the progress of our restructuring and other initiatives in 2019 and I appreciate the exceptional work of our employees globally. With that, I will now turn the call back to Don. Thank you..

Thanks, Nick. As you can see, our guidance for 2019 shows that with improved revenue and focus on operating discipline, we achieved significant earnings leverage. To discuss those plans, I will now move to Slide 16. As I mentioned at the beginning of the call, 2018 was a year of significant change.

An important milestone for the organization was laying out our priorities for a comprehensive restructuring plan that is focused on accelerating growth, improving margins while simplifying the organization. The foundation of that plan starts with creating a compelling vision for the Company and building a world-class leadership team.

Toward that goal, one of the critical accomplishments of the organization during 2018 was moving to a singular, simplified leadership structure. This allows us to act as one company with one view of where we're going and how we're going to operate in the future. This also significantly enhances our visibility and accountability.

Further in 2018, in addition to simplifying our organization structure, we have focused on upgrading talent. The leadership team, we have both blends, experience and a track record of delivering results.

Our senior commercial leaders, Bill Newell and Walter Petersohn, bring a lot of experience and expertise in their roles of Chief Segment Officer and Chief Commercial Officer respectively. We are also benefiting from new thinking around integrating our supply chain with the addition of Dan Key, our Chief Supply Chain Officer.

Additionally, I am very happy to announce the addition of Cort Stellar [ph] as our new Chief Technology Officer. Moving to Slide 17, we have provided our strategy and our organizational priorities.

We believe that Dentsply Sirona will win in the marketplace when we leverage our unique breadth and depth to provide innovative solutions for our customers globally. Going forward, we have three simple organizational priorities, which I've mentioned, growing revenue, improving margins and simplifying the organization.

So let's review some of the details that support those priorities.

In order to grow the focus on organizational simplification, productivity and R&D, enhancing our commercial capabilities and continuing to feed important and growing regions where we operate, we have leaned out our organizational structure by consolidating our 11 SBUs into five product groups and created a single supply chain organization and we have simplified our regional commercial structure.

We will continue to report in two segments, Consumables and Technology & Equipment. However, beginning in first quarter of 2019, our instrument and ortho businesses are moving from Consumables into the Technology & Equipment segment. And our prosthetics business is moving from Technology & Equipment to the Consumables segment.

By making these changes, we group our products in a way to better unlock natural synergies between business lines. Innovation is our lifeblood and there have been significant changes to how we approach developing innovative solutions and technologies. Our R&D process now begins with a top-down portfolio management process.

This allows us to focus on developing larger and more impactful initiatives at a faster pace. It means we will align resources across the organization to reflect the biggest opportunities. It also means that we will start looking to create synergies between our innovation efforts to take advantage of our unique breadth in the category.

A great example of this new approach is in the CAD/CAM area. Over the past year, we've overhauled our strategy and are now committed to growing both our Chairside franchise and vigorously competing in the DI space. We are in the process of introducing a complete portfolio of products that gives us strong entries across the entire spectrum.

This starts with PrimeScan, a launch that we are able to accelerate by leveraging our focused R&D approach. PrimeScan is lightning fast, easy to use and takes high quality digital impressions. This breakthrough leads to faster and more streamlined Chairside CEREC restorations.

The feedback we've received from dentists that have experienced this product is overwhelmingly positive. And PrimeScan is a truly open platform. So we now have a DI system that can create high quality digital impressions that could be used by all the major lab-based CAD/CAM manufacturing systems.

We are also enhancing Omnicam with new software that improves performance and offering that system later this year for $29,995, which makes it extremely competitive with DI other systems, particularly when you factor in we do not charge any annual fees and we do not have any per scan fees. Moving to Slide 19, to talk about clear aligners.

At the Chicago Midwinter, we introduced our new SureSmile aligner software. This SureSmile system combines clinically superior planning capabilities with state-of-the-art manufacture. SureSmile aligners and planning software deliver a complete clinician controlled clear aligner treatment solution.

The reception to the software launch was very enthusiastic and we're optimistic that SureSmile will ramp as we move through the rest of the year. In addition to innovation, enhancing our commercial capabilities has been a major area of emphasis over the last year. At the heart of this initiative is improving our sales force execution or SFE.

Our SFE program is built around a comprehensive segmentation strategy that allows us to identify high-value customers, create a common view to that customer across all Dentsply Sirona's sales forces, move to a common CRM platform and implement an incentive structure that focuses on bringing the breadth of the Dentsply Sirona's portfolio to the dentists.

It also involves creating a much more analytical approach to targeting, call planning and performance evaluation. This program is rolled out at a recent national meeting and the reception has been very enthusiastic. We will also continue invest in high growth parts of the world.

Turning to our second operational priority, improving margins, an important initiative is to centralize our supply chain across the entire company. We have lots of institutional knowledge and expertise to get this job done and we're supplementing that with new leadership.

We've mentioned that includes the addition of Dan Key to our management team as our Chief Supply Chain Officer and Dan has already started leading our efforts to create a single integrated supply chain responsible for all manufacturing, global demand planning, logistics, distribution and procurement as well as other critical areas.

As we said, part of our SBU and RCO consolidation efforts and margin improvement programs, we are targeting a net headcount reduction of 6% to 8% by 2021, that will bring us down to between 15,000 and 15,300 employees from the roughly 16,300 employees we had in November 2018.

We have made very difficult decisions in accordance with this effort since announcing the restructuring plan and we will continue to work with our employees and Works Council to determine the best outcome.

At this point, our headcount reduction are tracking ahead of plan and we've achieved an employee target of less than 16,000 at the end of fiscal 2019. And we are on track to achieve our goal of 15,000 to 15,300 by the end of 2020. Another way, we are working to improve margins through portfolio shaping.

We are taking advantage of opportunities to exit underperforming businesses and thus reduce cost and complexity. We are in the process of discontinuing our [indiscernible] business which was losing money, and it's been a significant drain on the organization.

We also exit CCAD which was a joint venture with a software developer and we are divesting a surgical and respiratory business that was non-core. This is an ongoing effort as we assess additional candidates for portfolio shaping with a focus on improving top line growth and cost savings.

We will announce additional portfolio shaping activities in the coming months. So in summary, the plan we laid out is focus on delivering a simplified organization while accelerating growth and improving market margins.

With the plan this comprehensive, it is imperative that we provide visibility to the progress we are making, and in November, we provided some non-financial metrics and these are on Slide 23. Reviewing progress against these KPIs. First, we start with the significant progress we've made in the SBU and RCO consolidation.

We completed the majority of the steps in these consolidations and have been operating under the new improved structure since January. Our R&D portfolio consolidation is under way and we've had some early wins with PrimeScan, our GP Ortho software and much more to come at IDS later in March.

We've implemented our sales force effectiveness program in the US and continue to drive clinical education. As we've discussed, we've taken clear decisive steps in shaping our portfolio, exiting three underperforming businesses and additional actions are under way.

We are working through our headcount reductions and are on target to achieve the full 6% to 8% reductions before the end of 2020. Again, that is ahead of schedule. As you can see, we hit the ground running after our announcement in November and we will keep this momentum going.

That said, our entire management team recognizes the size of the task ahead and we do not expect progress to measured in a straight line. On Slide 24 we've outlined our financial target expectations for our restructuring plan. In terms of revenue growth, we maintain our view that Consumables will have steady growth of 2% to 3%.

We anticipate Technology & Equipment returning to growth this year, partially as a result of resolving our 2018 inventory destocking and the launch of substantial innovations. We project this segment will grow at 4% or even more going forward.

Considering these factors and some of the progress we are making, we maintain that this will result in Dentsply Sirona revenue growth at or above market with our target of 3% to 4%, with operating margins of 20% by the end of 2020 and 22% by 2022, with additional improvements thereafter. 2019 will be a year focused on execution.

We expect to accelerate EPS growth in the near term as we act on cost saving opportunities. And as we've shown in our 2019 guidance, growing revenue with expense discipline, with strong EPS leverage. Additionally, it's important for us to maintain an investment grade rating to enable us to best utilize our balance sheet going forward.

We are providing this level of detail on metrics over the next few years, because our Board and management team is committed to increasing transparency of our plans and ultimately successfully executing. These past few months have reaffirmed my belief that this is a great company with world-class talent operating in an attractive market.

Our leaders and employees around the globe are working with urgency and a strong sense of purpose. We are confident in the progress we have made and we will continue to take decisive actions needed to deliver on our commitments. We look forward to continue to update on our progress throughout 2019. And with that, we will open it up to questions..

[Operator Instructions] Our first question comes from Brandon Couillard with Jefferies..

Thanks, good morning..

Hi, Brandon..

Don, clearly, you seem to be making quite a bit of progress on the restructuring front. Just curious if you could just sort of speak to your level of confidence in the outlook, and particularly the guiding of above the street for 2019.

And secondly for Nick, could you sort of quantify the impact on OpEx from the portfolio shaping? And perhaps speak to the magnitude of the additional opportunities planned later this year?.

Sure. Obviously, Brandon, we feel 2019 it's critical for us to deliver on our commitments. That's both internal, to our partners, to our customers and to the investment community. So when we set the guidance this year, we felt that it was critical that we are able to deliver on that commitment. So we have a high level of confidence in doing it.

Now I did say that, as we look out over the year, we have a lot of work to do. And as we head into IDS, a lot of the work that we've been doing from an R&D perspective, really comes to fruition there. A lot of the cost savings and portfolio shaping, it was kind of happened and we expect that to happen over the next couple of quarters.

So we recognize there's a lot of work to do. But that being said, we feel very good about this guidance. Obviously, we know it's a really critical year for us and that's why we set the guidance where we did, and we look forward to going and executing..

Hi, Brandon. How are you? Yes. In terms of the portfolio trimming, as we mentioned, $70 million of revenue in 2018 is being eliminated, and there's about $10 million to $20 million of savings, mostly in OpEx that goes along with that portfolio trimming.

We continue to look at opportunities in '19, but that's the year-over-year impact '18 versus our guidance..

Thanks. And then there's also been some I'd say mixed data points, at least as far as the US Dental consumables market stands.

Do you sort of speak to what you're seeing in the US market? And could you quantify the impact of the Venlo recovery on consumables in the fourth quarter?.

Yes. Brandon, we'll split that one, Nick I'll answer the second, I'll answer the first. It's interesting. Our US consumables business was down a little bit versus prior year. It's down off a comparator that we mentioned in the script, that where we had seen some pull forward of Q1 2018 into Q4 2017. So some of that is what's going on.

So we actually believe that over the course of the total year, we feel pretty good about where the consumable business is performing.

And while we don't want to get into a lot of specifics, we believe that we've got a pretty good beat on some pretty good innovation in the consumable business, that should have a positive impact in 2019 as we go forward..

And in terms of Venlo, what we said in Q3, Brandon, it was about a $20 million shortfall. We feel we've covered most of that in Q4, not all of it. And excluding for that effect, our growth rate would have been roughly 100 basis points to 150 basis points less in the quarter, on consumables..

Very good, thank you..

Thanks, Brandon..

Our next question comes from Jeff Johnson with Baird..

Thank you, good morning guys.

Can you hear me okay?.

Yes, Jeff.

How are you?.

I'm well, thank you. Congratulations on the quarter and the guide. Question for you, Nick. I guess starting with you, just on the margin outlook. Obviously, about 200 basis points at the midpoint this year and obviously we see the end of 2020 and then the 2022 commentary reiterated in the slide deck today.

But kind of help us, is 200 basis points on an annualized basis, kind of the right way to think about the next few years, each of the next few years or should we think about 2019, maybe benefiting from -- Don, as you mentioned the headcount reduction maybe a little ahead of schedule right now, you've obviously got a little bit of rebound effect, that's probably helping this year as well.

So just how to think about conceptually, the annualized margin performance, the next couple of few years?.

Yes, I would start Jeff, with the key drivers, obviously, revenue growth. As we said in the past, revenue is very accretive to our operating leverage. We're seeing some of that in 2019 with the targeted gross margin getting up to that, up to that 57% level.

We've targeted operating expense being flat, so that further drives your operating margin improvement. I would say we are -- made good progress on headcount, but we see that continuing through '19 as well. So when you get to be 17%, 18% operating margin going into 2020, you can kind of consider the same trajectory in the years thereafter..

All right, that's helpful, thank you. And Don, I wanted to go back to one point you raised on PrimeScan. You said no annual fees, scan fees, things like that.

Does that mean there's going to be no CEREC club fees with that or the total -- or monthly fees completely eliminated?.

Now, we are -- to be specific on that, Jeff, that was in reference to the Omnicam. So we've announced that we're coming up with what we call Omnicam 2.0. So -- and that -- we believe that we have to be able to offer a relatively complete spectrum of products.

So it will have everything from PrimeScan fully loaded, so you could -- with software that you can just plug in and mill all the way down to Omnicam 2.0; and PrimeScan, it stays with our traditional revenue model..

Okay.

So the 2.0 and not to blabber the point, I just want to understand the 2.0 at the $29,995 you're talking would have no CEREC club fees or anything that -- that's out the door and I can use it as much as I want?.

Yes..

All right, thank you, that's helpful..

Our next question comes from Nathan Rich with Goldman Sachs..

Thanks for the questions.

Don, can you maybe just talk about how you're viewing the market opportunity for PrimeScan and how big of a product do you think that could be over time? And maybe just tying that kind of back to the guidance, can you give us a sense of what contribution from new products like PrimeScan and SureSmile that you have embedded in that guidance for 4% to 5% internal growth?.

Yes. We'll split that one up, and Nick I'll provide some of the details in terms of what our new products assumptions are. But sufficed it to say, it's not just PrimeScan. We look at the ortho business, we've got some good consumables. So we believe that there is going to be a pretty solid new product number.

Now, we're probably not going to give you the exact new product number. But that being said, on PrimeScan, it's interesting for us, the biggest feature on PrimeScan, it's really easy to use and it's really fast. And we think that is somewhat of a practice game changer.

Because I'm not sure you're going to have to have a dentist or somebody with a lot of skill actually using this.

And I'm not sure that in three, four years, we're not going to see that it just becomes part of office practice hygiene, where literally you're going to come in, just like if you went to a GP, they take your blood pressure there, we're going to take additional scan.

And finally, we have a product that's going to be able to deliver on the ease to speed and the accuracy that could really make that happen. The second thing that we did with PrimeScan is we've made an open system and we've worked with people like exocad and others to make sure that we now connect with all labs, and it's an open system.

So look, we think PrimeScan as a significant opportunity. And if you look at the past history of this company, when we've had kind of a generational leap in technology in the CAD/CAM area, it gives us an opportunity to not only expand Chairside.

But finally with this camera, we think that it gives us a real opportunity to begin to change literally how dentists practice in the office.

So obviously, we think it's a major opportunity for us and that's one of the reasons we've worked so hard to pull it up and make sure that we've got a great product that's ready to go for Chicago Midwinter and IDS. We've got a great team over in Benson that's done this and I want to acknowledge the hard work that they've done..

And okay. In terms of the revenue, clearly, a significant block is the recovery of the destocking, which is about 2.5% in the Technology & Equipment segment, as Don has mentioned multiple times, we have a good pipeline of new products.

We're not going to give specific figures, but that's additive to that number in addition to just base growth in the business..

Yes..

Thanks. I appreciate that. And then, Nick. Just maybe one quick follow-up on EBIT margin.

Can you just kind of update us on where we are with pricing in the Technology segment? Do you feel like a lot of the pricing issues that we've seen in the imaging side of the business, do you feel like that's behind you and your pricing, is it a competitive point at this point? And any comment on just kind of maybe what's embedded in the guidance for 2019?.

Yes, I would say that we made a significant price adjustments in some core markets, principally the US in the back end of 2018 and that full-year pricing is reflected in our guidance for the year. We think our products in imaging are now competitive in their respective markets. So it's appropriately reflected in our guidance..

Great, thank you..

Our next question comes from Kevin Kelly of UBS..

Hi, Kevin.

How are you?.

Good, thanks. Sorry. I was on mute.

Can you guys talk a little bit about PrimeScan, in terms of the process of getting validated by Align and some of the other providers like how does that work? How long does that take? How important is that to the growth of the product and sort of your expectations?.

Yes, Kevin, welcome. We're happy to have you on board..

Thanks..

Obviously, you have to look at PrimeScan in two different ways in terms of what are we registering, and what aren't we. First is globally and what we -- right now we can launch this product in the major US and European markets.

There are some regulatory hurdles that we've got to get through for rest of the world that will result in PrimeScan kind of being a rolling launch over the course of the year, as we get out to some of our really important markets in Asia. That's the first thing.

In terms of where we are with PrimeScan and Align, probably the -- it's best to ask the Align folks on where that is. We are committed to an open system. And we've been committed to an open system in terms of our mills and furnaces accepting data from other digital impression devices. So, we think that's important.

And right now, we believe that Omni is an important source of digital impression material for the Align team. So that's -- right now, we don't have a specific answer on that. We're working on it, but we've got a good relationship with those guys. Omni has been in a good partnership for both of us, so we'll see as we go forward..

That's really helpful.

And could you talk a little bit about SureSmile? What is the -- is this a product that you envision being mostly used by orthos or is there an opportunity in the GP market or how are you segregating that? Is it a different pitch to either or can you just talk a little bit about the opportunity, so we can -- I can sort of understand how it fits competitively in the marketplace..

Yes, Kevin, that's one of those where we, you asked two questions. We just say, yes. Look, we think it's a significant opportunity in ortho and let's talk about that. We believe that we have a very comprehensive treatment protocol -- treatment guide protocol that does complete root to crown work.

We also for our ortho offering do what's called a hybrid treatment in some cases where clear aligners isn't enough to get the job done, so that involves putting traditional brackets and bands on for a short period of time and then finishing with clear aligners but the aggregate of a hybrid treatment is actually significantly shorter than what a traditional brackets and band treatment is.

So that we believe that's first our clear aligner offering, our treatment protocol and the hybrid offering makes us very competitive in the ortho space. We also believe that there is a pretty significant opportunity GPs. Again, we will stack our treatment guidelines up with anybody and ease of use of our system.

We think that we've got a terrific set of software programs that right now that by the way, when coupled with PrimeScan, and this is an example of how we are trying to get different parts of Dentsply Sirona to work together. I mean, we literally launched our GP software. It's ready to go with PrimeScan right over the back.

We think we've got a great opportunity for GPs where they're getting root to crown treatment planning, they're getting a great clear aligner, and we think it's going to work seamlessly with what we think is the best prime -- with PrimeScan, we think the best digital impression piece of equipment on the market..

That's great, guys. Thanks so much for help and congrats on the quarter..

Thanks, Kevin..

Thank you..

And next question comes from Tycho Peterson with JPMorgan..

Hey, thanks, guys. Nick, maybe to start off, can you just talk to what gives you confidence that we won't see any more destocking? Obviously it's been a rocky kind of two years.

So what gives you the confidence going forward that we really are through to the tail end of it?.

Thanks, Tyco. Well, first and foremost, we have a really good dialog and direct communication with our dealer partners to track their retail sales and their inventory.

Second, it's been, first and foremost priority throughout the year, net we got to about $100 million destocking for the year and net purchasing level where we can have retail sales be directly correlated with our wholesale shipments. It's a priority to keep it that way. I hope to never talk about destocking after 2019.

And that just have our sales speak to the market demand directly. So we have a high degree of confidence that this will be an issue that will be put behind us..

Okay. And then, Don, on PrimeScan. I appreciate all the color.

Can you maybe just talk to your discussions with DSOs and then also dental labs? How you're progressing with both those constituencies?.

Yes, thanks, Tycho. First I'll start with the labs. We went out and wanted to make sure that we can seamlessly integrate our -- moving our digital impression stuff right to any lab and use any lab system and we've made the necessary arrangement with the software providers.

Prior to this, it was a little bit cumbersome in some cases to move our data over to labs and right now we're totally open. We feel that any -- literally any lab in the country can accept data of PrimeScan right off the back.

So we're very, very excited about that and we've had those conversations, people forget sometimes that we actually have a lab group. So -- and we've been working through our dealer partners as well.

So that's the first thing, and then, look, we ultimately believe that PrimeScan, you actually saw it, I know, you saw it when you were in Chicago, we think it's a pretty, pretty strong product and we're, as you can tell, when we were there, we're pretty excited about how competitive it is..

Okay.

And then just lastly for Nick, the swapping of assets between T&E and Consumables, does this change the segment growth rates at all as we think about it going forward or is it a wash?.

I would say it's not material and -- actually there won't be a material impact, and obviously, you'll see the restated numbers after our Q1 results..

Okay, thank you..

Our next question comes from Steven Valiquette with Barclays..

Hey, this is Jonathan Young [ph] on for Steve. Just in relation to the company's portfolio shaping initiatives, I know you guys have the $70 million coming up in 2018.

But as we think about 2019, 2020 moving forward, I mean, should we assume a similar type of level of divestments that should be happening move forward or what's the kind of magnitude that you guys are thinking about in relation to that?.

Yes. Thanks, John. Yes, look, the size of these kind of portfolio shaping activities, you can see, they're not significant. I mean we're not saying we're going to move one of the traditional dental pieces of business or Wellspect. So I think we've got probably another couple of the size that we've been doing.

I don't think you should look to see a dramatic acceleration of that, look, if we finish this whole thing out at about, we posted $70 million. There maybe one or two more, we think it'll stay under $100 million going forward. So don't expect huge changes in 2020, 2021.

Okay, great. And then just on PrimeScan, I think when we were at the Chicago show, you were targeting more for new users. I guess what's been the commentary from new users versus existing users and when do you plan on providing an upgrade path for current Omnicam users? Thanks..

Well, first, right now, the reaction has been really, really positive, both from perspective new users as well as current users. The current users have to make a decision, because we're not offering an upgrade program right now. We may come back in the third or fourth quarter and offer that.

Some of that's going to be contingent on how much product we have available, we feel we've got a really good stock, we got really good production plan.

But I got to tell you, right now, given that the amount of PrimeScan is somewhat limited, we don't feel that we want to be in a position of being aggressive right out of the gate on offering an upgrade program.

So in our mind, we've always said what the best way for us to improve our penetration in the really important Chairside business, is to come up with great products, we feel we're doing that. The emphasis that we have right now and we've been working with our dealer partners, let's sell this to new users.

And we're pretty excited that this product changes the ability for us to have a totally new conversation with those users. So look, we are optimistic that we will be able to see improvements over time in our ability to penetrate new users, point one. Point two is, we may come back with a upgrade program, but that's not a guarantee this year.

So if current CEREC users actually wanted to get the -- want to get the upgrade, they're going to probably have to participate at full price right now. I will say, obviously, we talk to our KOLs and we talk -- we tested this product quite extensively before we launched it. And we got a really good reaction from the CEREC doctors.

And there's been a lot of them saying just, this is a game changer for me, I want the product now, and they all have been willing to pay for that. So --.

Okay, great, thanks..

Thanks, Jon..

Our next question comes from Jon Block with Stifel..

Thanks, good morning. I'll start with implants. And I think, Don, you mentioned that recently turned positive. It's big for you guys considering the size of the business.

So can you talk a little bit more about the division and can we expect that business to creep closer to market growth in '19? And would you agree that implant market growth is in that sort of 4% to 5% neighborhood? And then I've got a follow-up..

Yes. First Jon, great on the follow-up. Yes, we do think the implant business is growing 4% to 5%; point one. Point two is, look, we're happy that we're starting to make progress on the implant business and showing year-on-year growth is a first step.

In 2019, I'm not sure that we're going to be performing exactly at market, but we just -- we think that the steps in our implant business have been, look, let's get a new leadership team in place. We've done that, we took one of our best leaders out of our historically well-performing rest-of-business and moved that there.

We believe that we have a lot of consolidation opportunities in terms of -- right now we have multiple marketing programs and multiple R&D that we're in the process of combining and getting that focused on one thing.

We believe that, when you look at the combined assets of all the R&D that we do in implants, we could do much better job of focusing on creating a little bit more breakthrough innovation there. We have done a better job commercially, which is why we actually saw growth on implants in the critical US market.

But over time, look, we think that we ought to be very competitive in the implant business. Whether that happens in '19 or '20, we're committed to growing the business.

And one of the important steps in this SFE program that we talked about, in our Sales Force Effectiveness program is, we're now looking at how do we create leads and how do we create support for the implant business with all the other units that we have in and out of dentist offices every day.

And we do believe, we have an opportunity to take advantage of the breadth and depth of Dentsply Sirona in creating lead generation and other things. So we're happy that we're starting to see some better performance on implants.

I think we have a long way to go, but we have a pretty darn good portfolio and I believe our commercial engine over time is going to be helpful to that. And I think you had a follow-up..

I did. Thanks for that color. The follow-up, just sort of high-level pivoting to demand creation. You guys have mentioned that's a big initiative for the Company. And so, Don, how is that progressing and PrimeScan is your first big new product post that plan.

So, maybe you can talk to us on how you're approaching the market with the demand creation initiative with PrimeScan versus what was the prior approach? Thanks guys..

Well, there's two things, Jon. I mean, I would tell you, let's take a big step back. If you go back a year ago, we didn't have a CAD/CAM sales force.

And one of the things that Nick and I did when we came in is [indiscernible] and said hey, I think John and Patterson do a great job, but we would like to have some clinical experts that are out to hit hot leads very, very quickly. So we've actually gone out and completed a unit. We're very, very happy with how that unit is performing.

And I think our dealers would say it's been a positive addition to the demand creation; that's the first thing. The second thing, if you look at how we're launching PrimeScan, PrimeScan is a Dentsply Sirona launch, it's not a CAD/CAM launch.

And by that I mean, literally at our -- we had over 1,000 sales people at our National Meeting down in Atlanta, about three weeks ago. And literally every single rep in Dentsply Sirona was taught how to use PrimeScan. Every single rep in Dentsply Sirona has now been given to every dentist they walk out into.

Here's some information on PrimeScan, every single one of them is now open. Here is five questions you can ask about the dentist who does not have a digital impression piece of equipment work is not a Chairside. So that we can create leads for our PrimeScan.

And by the way, they are now compensated if there are leads generated for Endo or PrimeScan or other things, they're compensated for it and they're compensated well. So that is a pretty dramatic change. The second really big demand creation activity that we put in.

And Jon, we love to get you down to Charlotte where we are sitting right now above our Academy. We've spent a lot of time, talent, and treasure, on continuing education. We believe when we launch these products and we're trying to change digital workflow, it's really important for us to back that up with a lot of clinical education.

So whether it's things like our Academy, expanding our clinical education capacity, we spent a lot of time on this.

So we are, again, it's not going to be overnight, but we believe we are taking significant steps and that will enable us to enhance the ability to take great innovations like PrimeScan and SureSmile and other things and launch it on the DS platform as opposed to on a small silo..

Got it. Helpful color. Thanks, Don..

All right, thanks, Jon..

Our next question comes from Erin Wright with Credit Suisse..

Great. Thanks. Can you give us an update on your supply chain integration initiatives. And what does this really mean for the role of third-party distribution for you and how are your relationships progressing there? And can you just remind us of your overall commitment to third-party distribution? Thanks..

Thanks, Erin. First, we continue to be committed to our dealer partners and we think they do a great job. I will start with the fact that, our dealer partners do a lot of different things, which I think are sometimes under-appreciated.

I mean, they go out and do a lot of the service work, we've got a 100,000 plus SKUs and they provide tremendous logistics support, and they are a very valued partner from a demand creation perspective in a lot of different areas. So we remain committed to the dealer partners and we continue to work well with them.

As a matter of fact, I think we're probably working better with them today, than we were a year ago. In terms of what our overall supply chain initiative. Erin, even if the business pretty well. I mean, we had actually close to 12 supply chains.

We had 11 SBUs each unit running their own manufacturing and we've had somewhat of a little bit of a corporate infrastructure that would help to talking about things like distribution, when we did a consolidated initiatives like Lancaster or Venlo.

Basically what Dan Key and Dan comes with us -- comes to us with 30 years and has done multiple supply chain integrations within healthcare on a global basis.

So he's been a tremendous addition to our Group, and he is already bringing in talent in the distribution and demand planning areas, that are going to bring a discipline for Dentsply Sirona as opposed to 11 individual SBUs.

So what that immediately does on us is like we start thinking about the 40-plus manufacturing facilities, the 80-plus distribution facilities as a network. And once you begin looking at things as a network, you can begin to understand where you have capacity, where we need to shed capacity and other things.

So we feel that there are significant opportunity, I'll tell you right off the bat in procurement, when we start acting as an integrated supply chain. But we think that we can significantly improve our distribution footprint and take advantage of some synergies there.

And yes, it's kind of early days for the supply chain leadership team and going out and evaluating the manufacturing. But again, we think there's opportunities when you move things from individual SBUs to a network. And as we put together 2019, there were some obvious things that we think that we're going to be able to take advantage of this year..

Okay, great.

And then on PrimeScan, which is something that you were able to expedite through the development pipeline, given the R&D optimization initiatives that you have in place, and what are some of the other new product areas that you're focused on at IDS, is it around implants or other areas I assume, we should see more new launches at the show?.

Yes, you will. In both booths, Erin, if you're coming over. But, PrimeScan, look, when you take a big step back and look at what we're trying to accomplish with Dentsply Sirona, in our mind is, we want to bring solutions to dentists.

And one of the best ways we can do that is really pushing digital dentistry, whether that's in Chairside or really moving digital to a different place than it is today, so that you can do things like SureSmile, you can do things in my opinion like surgical guides and implants.

So, we said that, that was an area that -- we felt that there was technology in the pipeline that if we gave them the resources that you could see an acceleration. And we believe it's pivotal to begin to show progress in some of the major SBUs. And that was the first one we could get out the shoot.

So additional resources enable that one to be pulled forward, and obviously, we're happy with the result.

But we think that there is multiple examples across the portfolio where we think we've had some things in -- on the shelf that we maybe be able to accelerate and really begin to push that are going to make a -- we say it's got to move the needle for the enterprise.

And if we go from 100 projects down to 40, and really focus on those 40, we think you're going to see those initiatives happen a lot faster. In IDS, without giving away, obviously, PrimeScan is going to be one of the stars of the show. But we have SureSmile there, we've Acuris which is a new fastener system in our implant business, as well as Azento.

So we're excited about some of the stuff we're doing in implants. We have some good stuff coming in the Consumables, which we haven't announced yet and we remain excited about that. And we've got a good Endo product, virtual anatomy, that we will be featuring for the first time in that show. So we've got lots of news.

The big difference for us at IDS is, we're going to be focused on kind of these big things to make sure that every dentist that walks out of IDS knows that these are kind of the priorities. But, if you come over to -- again, we have a very significant presence at IDS.

We do have some kind of enhancements to products that we think might be attractive to dentists as well, and that's one of the reasons we have such a big presence there. But we are very optimistic that we're going to have a good show at IDS. And obviously, we're looking forward to head to Cologne in about a week. So….

That's great, thank you..

Thank you, Erin.

John, what you've got?.

Our next question comes from John Kreger with William Blair..

Thanks very much. Don, I know you guys have been primarily internally focused.

But if you step back and sort of think about the broader global dental market, can you give us what your sense is? Is it getting better, getting worse? Where do you see the biggest growth opportunities over the next few years?.

John, it's an interesting question. Because there's obviously been some conflicting signals sent out. You look, our outside US growth was really, really good in the fourth quarter and we see no -- we don't see anything in the horizon that's really going to slow that down.

If you look at for us, some of our Latin American, we're seeing some good progress in Asia Pacific, particularly in China. So we continue to be optimistic about that. We had a question a little bit earlier around implants. And if you look at how the implant business is growing, we continue to see progress in that.

I mean, we have a lot of people that are aging. I mean there's going to be 25 million 80-year olds by 2025. And I think that speaks well to the opportunities we have there. I think, if you look at the underlying growth of what we thought of retail of the Technology & Equipment in the fourth quarter, we thought that was pretty strong.

And again, when you start seeing, in our case, we'll have PrimeScan and we'll have Omni 2. We feel very, very good that, those kind of step changes innovation. And by the way, we know there's going to be a lot of competition with IDS in the digital impression. We think that bodes well for the overall category.

Because I think it is -- you are bringing technology that's going to improve workflow. And with improved workflow, I think you're going to see enhanced revenues for the dentists. So we remain optimistic about it.

Again our -- when we put the guidance out in November about what we thought, our long-term growth aspirations of 3% to 4% on the revenue side, we felt pretty good about that. And I think if you -- people set their [indiscernible] in technology and equipment space going to continue growing that way.

Boy, if you look at clear aligners and you look at implants, which is -- that's where we look at those businesses. Yes, we continue to see very, very positive trends in that space..

Excellent. Thank you. I just -- one other one if you could clarify. I know you're very focused on sort of reorienting and consolidating the sales organization. Can you just tell us where does that stand, and how much more do you have to do in '19 to be done? Thanks..

Yes. John. You almost want to look at that as regionally phasing. So US, we're now operating in the new model. So we -- look, we've now put everybody into place, we put the systems into place, we've done all the segmenting work, we've changed our communication, we changed our measuring target, and everybody has learned the new CRM system.

That being said, kind of significant sales force changes. You have to let that marinate for three months before you really begin to measure and again of course correct six months before you really in my opinion, see people really positively impacting the business. But we also believe the SFE program is not just going to be a US program.

We believe we have significant opportunities in Canada, in Europe, with a particular focus on Germany; Japan and China that we're rolling this program out, and that will be over the course of '19. But right now, in the US, we are operating under the new model and we'll report on that as what we see. But coming out of February, we felt good..

Excellent. Thank you..

I'm not showing any further questions at this time. I'd like to turn the call back over to John Sweeney..

Thanks very much, Kevin. And thank you everybody for joining us today. We looking -- we are very much looking forward to seeing many of you at the IDS, it's about 10 years -- sorry, 10 days. We're very encouraged by the execution of our restructuring initiatives, we're very happy with the innovation that we have with PrimeScan.

And we look forward to showing you many of the other things that we have at the show. Thank you, everybody, and have a great day..

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