DENTSPLY SIRONA Inc. Q2 FY2021 Earnings Call

Good day. Thank you for standing by, and welcome to the Q2 2021 Dentsply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. The conference is being recorded. I would now like to hand the conference over to your speaker today, Andrea Daley. Thank you. Please go ahead.

Thank you, Kelandra, and good morning, everyone. Welcome to our second quarter 2021 earnings conference call. I'd like to remind you that our earnings call, press release and slide presentation related to the call are available in the Investors section of 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 about 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. In today's conference call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. And with that, I'd like to now turn the call over to Don Casey, our Chief Executive Officer.

Thank you, Andrea, and thank all of you for joining us this morning for Dentsply Sirona's second quarter earnings call. We are pleased with our performance in the second quarter. As we will detail today, the dental market continues to recover and demonstrate the underlying resilience that makes it attractive long term. For the quarter, the Company grew both versus 2020 and 2019 as well as sequentially quarter-to-quarter. The team also made progress against our strategic and operational priorities, giving us confidence as we head into the back half of the year. The pandemic remains a key consideration for us as we evaluate our performance for the quarter and plan for the remainder of the year. At this point, we feel the market is operating slightly below 2019 levels with a continued recovery expected for the remainder of the year. As we navigate through the newest phase of the pandemic, we are mindful that there continues to be some ongoing impact in certain regions and some stresses to the supply chain. One constant throughout all of this, though, has been our team at Dentsply Sirona. Their performance over the past 18 months has been exceptional, and I would like to thank them for their tremendous commitment to our customers as they demonstrate every day. On today's call, Jorge and I will talk about our results for the quarter and provide our outlook for the remainder of the year and discuss our growth plans for the back half of 2021 and beyond. Moving now to Slide 6. As I mentioned, our financial performance for the quarter was solid and closes out a strong first half of the year. The results reflect the continued recovery of the market, progress on our growth initiatives and good operating discipline. Revenues reached $1.067 billion, up 104.6% on an organic basis. Our operating margin was 20.5% versus minus 8.6% during the prior year. Adjusted non-GAAP EPS was $0.71 compared to a loss of $0.18 last year and cash flow was $214 million. To provide more details around the quarter, I will now turn the call over to Jorge.

Thanks, Don. Good morning, and thanks for joining us. As a reminder, my remarks today will be based on non-GAAP financial results unless otherwise noted. Please refer to the reconciliation tables at the back of the press release and slides both of which are posted in the Investors section of our website. As Don said, our second quarter performance rounds out a strong first half of our fiscal year. In Q2, we delivered sequential quarterly revenue growth in both consumables and T&E. We also posted organic sales above pre-COVID levels in 2019. Let's look at Q2 in more detail. Versus last year, the business delivered organic revenue growth of 104.6% and reported growth of 117.3%. Compared to the second quarter of 2019, reported sales grew 5.7% and organic sales grew 3.1%. Both segments also grew versus Q2 2019. This performance against the 2019 baseline confirms the steady recovery trend we have seen in 2021. Gross profit was $626 million or 58.7% of sales. This strong outcome reflects the continuation of a favorable mix similar to Q1 as well as the overall portfolio optimization work we have done to focus on higher growth, higher-margin businesses. We're also seeing some challenges from a supply chain cost perspective, and our teams are working diligently to address them. Before I start discussing SG&A numbers, I would like to remind you that we now report R&D spend separately from SG&A. As we indicated last quarter, we began to ramp on planned SG&A investment spend in the second quarter. We tempered certain investments during the height of COVID, but we are now accelerating projects as the market further normalizes. We are increasing investments in sales and marketing to support our short- and medium-term growth plans in clear aligners, implants and digital capabilities. Sequentially, SG&A increased in absolute dollars but remained relatively flat as a percent of sales. Versus the prior year quarter, SG&A as a percent of sales declined 12.6 percentage points to 34.4%. Spending on R&D was up 122.2% in the quarter to $40 million. We expect this level of spend to continue as we are committed to delivering innovation and great solutions to our customers. We are taking a disciplined approach to ensure alignment with our strategic priorities and track return on R&D investment. Operating profit was $219 million versus a loss of $42 million last year. The business delivered an operating margin of 20.5%, representing continued margin expansion from the realized benefits of our restructuring program. At the same time, we have been able to make meaningful investments in our business to fund growth initiatives. Net interest and other expense was flat versus last year. The non-GAAP tax rate in the second quarter was 23.9%, a decrease compared to 26.8% in the prior year quarter, which was a function of the changes in the U.S. versus non-U.S. pretax income. Non-GAAP EPS was $0.71 versus a loss of $0.18 in the prior year quarter. Moving to segment performance. Versus the second quarter of 2020, Consumables and Technologies & Equipment posted organic growth of 135.3% and 85.2%, respectively. Both segments posted strong growth across all product categories. Consumable sales were $445 million, an increase of 138% versus the prior year. Growth was strong across all regions and in all categories, most notably within the endodontic and restorative parts of our portfolio, which represent strategic priorities for our business. Additionally, the rebound in the preventative business, particularly in the U.S., continued in Q2. The consumables market has been resilient, and our team is executing well through the recovery. Currency favorably impacted consumables by 11.2%, offset by a reduction of 8.5% due to divestitures and discontinued products. Moving on to Technologies & Equipment segment results. T&E sales grew 104.6% versus the prior year, with strong growth coming from all regions and product categories. The growth was driven by digital dentistry and equipment and instruments, which grew well in excess of 100%. The T&E segment also includes our health care business, which showed a smaller pandemic-related impact than the dental business in Q2 2020, resulting in a less significant year-on-year growth. Within T&E, the launch of our new Axeos imaging unit continues to go very well. We're also seeing strong momentum in digital dentistry with digital adoption and upgrade cycles fueling growth for Primescan. Our Clear Aligners franchise performed very well in the quarter. Sales growth is strong, and we are confident in the team's ability to deliver on the $300 million 2021 exit run rate shared previously. This quarter, we also announced the acquisition of Propel Orthodontics and a strategic partnership with 3Shape, further complementing our clear aligners offering. We expect to see the benefits from these two initiatives starting in 2022. Currency favorably impacted sales by 10.4% as well as a benefit from acquisitions of 19% and offset by a reduction of 10% due to divestitures and discontinued products. Now turning to financial performance by region during the second quarter, U.S. sales were $366 million, a growth of 179.4% versus last year. Organic sales growth was 145.8%. We were pleased to see dental sales volumes return close to normal levels in both segments and across all product categories. European sales were $431 million, a growth of 99.5% versus last year. Organic growth was 91.8% compared to the prior year. Similar to U.S. sales, all areas in consumables and T&E rebounded well from the low point last year. Rest of the world sales were $270 million, a growth of 87.5% versus last year. Organic sales growth was 86.2%, reflecting the recovery in demand across consumables and T&E. The Asia Pacific region, in particular, has been an area of continued growth for our business. Next, I'd like to cover cash flows. In the second quarter of 2021, our operating cash flow was $214 million, a $39 million improvement versus last year. The Company finished the second quarter with cash on hand of $352 million and committed credit facilities of another $744 million. On a year-to-date basis, we deployed more than $241 million to fund strategic acquisitions, including Datum and Propel Orthodontics. We also returned a total of $134 million to shareholders through dividends and share buybacks. During the second quarter, we increased the quarterly dividend by 10%. We also increased our share repurchase authorization by $1 billion. This is inclusive of the $260 million we had remaining from our previous authorization. Now let me provide an update on our financial expectations for 2021. We completed a strong first half of the year. We believe the healthy demand will continue through the second half of the year driven by positive momentum in patient confidence and procedure volumes with the vaccine rollout. Based on that, we are reaffirming our outlook for fiscal 2021. We also expect non-GAAP EPS to be close to the top end of the $2.75 to $2.90 range that we provided last quarter. Here are a couple of considerations with respect to our outlook. We have updated our assumption for the euro-U.S. dollar exchange rate for the remainder of the year from 1.22 to 1.18. We estimate the impact from this change to be a reduction in projected earnings of approximately $0.05 in the second half of the year. Second, this full year outlook includes commitments on investment spend that will be incurred over the remainder of the year. We will continue to operate with a high degree of operational discipline, and we'll manage SG&A expenses in line with the pace of the commercial activities. Our key 2021 planning assumptions are listed within the supplemental materials posted on the Investors section of our website. There are two risks to this outlook that are worth highlighting: COVID-19 and ongoing supply disruptions. We are watching closely how the situation evolves, especially considering the increased number of cases in some countries and the actions taken by governments to reinstate certain restrictions. Before I turn the call back to Don, we would like to share a quick update on our efforts around ESG. During the second quarter of 2021, we published our sustainability fact sheet and environmental scorecard. They are available for review on the Sustainability page of our website. Additionally, in May, we announced a global partnership with FDI, the World Dental Federation, as one of five industry founding partners to lead the new Sustainability in Dentistry initiative. Also, we are planning to publish our sustainability report in Q3. As we look forward in our ESG evolution, there are a few guiding principles we are keeping in mind. First, we believe purpose and economic value intersect in a clear way in our business. Second, we want to be transparent about our progress by increasing the disclosure of key ESG metrics. And third, we are measuring and analyzing our ESG data and we'll make sure we adhere to high standards of data integrity. With that, I will now turn the call back to Don.

Thank you, Jorge. I would now like to provide some perspective around our strategy and priorities for 2021 and beyond. Moving to Slide 16 in the presentation. Our priorities have been consistent for the past three years. They are to grow organic revenues 4% to 5% long term through a combination of organic and inorganic activities. The team continues to focus on improving margins and expects to achieve our goal of 22% by the end of 2022. Supporting this goal, our efforts to simplify the organization and take better advantage of our scale. This formula leads to our target of delivering consistent double-digit EPS growth. Slide 17 in the presentation details our strategy. We believe that Dentsply Sirona will grow long term by delivering superior integrated workflows and critical procedures. These workflows will be built around diagnostic excellence, easy-to-use treatment planning and essential consumable products. When we do this, Dentsply Sirona becomes the essential solution provider that improves outcomes for patients while delivering better efficiency and economics for the dental professional. Moving to the next slide. Dentsply Sirona is unique in this space with category-leading brands in both the X-ray imaging and the intraoral scanning spaces. Most companies have one or the other, but we are, by far, the biggest player with both. In the imaging space, Dentsply Sirona has a significant installed base comprised of many well-recognized brands that are at the heart of the dental practice. Our imaging brands include Schick, the Orthopos family, Galileo and our new Axeos wide-field CBCT system. Dentists all over the world recognize these brands for their high quality and innovative features. For perspective, our imaging systems combined to take over 400 million digital x-ray images a year. What really differentiates Dentsply Sirona though, is that in addition to our major presence in imaging, we are also a leader in the intraoral scanning space. There is already a large and expanding CEREC base that includes Primescan and Omnicam intraoral scanners, while we continue to emphasize the advantage of chairside dentistry. The Company is also focused on expanding our presence in the rapidly growing digital implant (DI) space. Our Primescan entry, in addition to being the engine for chairside dentistry, offers outstanding performance as a stand-alone scanner. When dental offices start with Primescan, they get a great scanner that is easy to use and extremely accurate. But starting with Primescan is only the beginning. Our system offers tremendous versatility that allows for easy upgrading to full chairside capabilities and further opportunities to expand into other procedures such as clear aligners and implants. Aesthetic areas like clear aligners, implants and complex restorations have been among the fastest growing in the dental market. These higher-value procedures are made easier and more efficient when using digital tools. And we are the leader in providing these increasingly important treatment planning tools. Our well-recognized treatment planning brands include Sidexis, CEREC, SureSmile, Simplant, Atlantis and MGuard. All of these treatment planning tools are fully integrated with our digital equipment. To give some context, in a typical year, there will be over 275 million patient cases done in Sidexis and over 4 million cases done through CEREC. The large volume of these cases also provides important fuel for our AI efforts. The final element of the strategy is linking the diagnosis and workflow tools with our essential consumables business. Every implant and endodontic procedure finishes with a restoration, which is why we are optimistic about our ability to drive consumables in the future. Our 4% to 5% growth target is built on a strong commitment to organic innovation, acquisitions and other inorganic opportunities built on a foundation of global commercial excellence. Organic innovation is our lifeblood. And as Jorge mentioned, our investment in R&D has been increased by close to 50%, reaching $160 million in 2021. This investment is helping drive a very robust pipeline for the back half of this year with continued progress in 2022. Moving now to Slide 19. In September, we will be launching a comprehensive restage of our implant business. The restage puts together our digital elements like custom abutments and continuing education and training. The program starts with harmonizing all our implant businesses under the Dentsply Sirona brand name, including our rapidly growing MIS value implant business. It will include strong new products, highlighted by PrimeTaper, an immediate load implant that will position us very competitively in the marketplace. We will also be updating our well-recognized Simplant treatment planning software and integrating it with CEREC. We're also focusing on our Atlantis custom abutment business, which has very easy-to-use planning software for custom abutments. For perspective, we process well over 0.5 million implant cases through Simplant and Atlantis on an annual basis. For the first time, we are offering a dental scanning program for CEREC, a major development in the implant space. And the dental scan takes advantage of Primescan's unique accuracy and provides a whole new level of detail that makes full-arch implant planning easier. While we are in the process of rolling out OSSIX bone regeneration brand to further enhance our implant offering and serve the rapidly growing immediate load implant segment in general. All our implant training and continuing education efforts will be harmonized and rebranded to provide a comprehensive implant curriculum for dentists. We've been working closely with our global implant KOL community, and they have started gaining experience with the product. The reaction has been very positive. They are very comfortable with the new products in part because they are based on a procedure they know well. The revitalization of our implant business is an important piece of our overall growth strategy. This relaunch will begin in September and continue rolling out globally throughout Q2 2022. Moving now to Slide 20. Our endodontic platform is another critical area for us. Beginning in September, we will be launching ProTaper Ultimate as part of a new platform that will include new files, a biosymmetric sealer and a new disinfection device. In addition, we will be launching multiple new motor systems in early 2022. The ProTaper Ultimate system really takes performance to the next level. The files have been designed to cut and shape better and faster, requiring fewer files per procedure. The complete system will offer better cleaning and shorter procedure duration as well. ProTaper Ultimate is the first major platform we have launched in the endo area in several years. It has also been in the hands of our KOLs and has met with a very positive response. There are also several critical software upgrades and launches coming in the back half of 2021. These include a major SureSmile upgrade, 7.7. This upgrade improves the user interface for the GP, simplifies the case review screen and enhances the order entry process. We're also launching CEREC 5.2, a significant upgrade in Primescan that further enhances its speed and ease of use. This CEREC 5.2 upgrade supports the new dental scanning capability and differentiates Primescan in the marketplace. Early beta testers have indicated that this software upgrade provides a level of performance that makes it feel like a whole new product. There are also multiple new SureSmile product launches coming over the next two quarters. These include the introduction of a vPro product as well as whitening in Q4. With vPro, which came as part of the Propel acquisition, SureSmile will be differentiated in the marketplace. All of these new products will be launched at our DS World event in September. Moving to the next slide. In addition to our organic innovation program, Jorge detailed some of the strategic acquisitions made over the last several months. All of these are designed to enhance our competitiveness in higher growth, higher margin categories, including clear aligners and implants. I wanted to add to his comments by saying that we are very happy with the Byte acquisition. We've had Byte for close to eight months and are very pleased with the integration program and excited about its future growth prospects. As mentioned earlier, we also closed on Propel in Q2, and we recently acquired Datum to provide us with a leading bone growth regeneration product to accelerate our implant businesses. These businesses are off to a strong start and their integrations are on target. All of this is powered by our outstanding global commercial team comprised of over 5,000 people. We've been investing in a comprehensive sales force effectiveness program that will be close to completed in our 10 largest countries by the end of this year. Over the past two years, the team has also made solid progress against our goal of improving our operating margin and simplifying the organization. We've rationalized our manufacturing and supply chain, launched a comprehensive enterprise modernization program around key functions, all while maintaining strong expense discipline. As a result, we will deliver the $250 million savings target by the end of 2022 and achieve our margin goal on time. Moving to Slide 23. In summary, we had a strong first half as the market recovered and the Company made progress on key strategic goals. We are reaffirming our 2021 outlook. The dental market continues to show resilience as well as strong underlying fundamentals. We believe that Dentsply Sirona is well positioned to deliver sustainable growth in the future. And finally, we are pleased to confirm that DS World will again be welcoming guests to Las Vegas, September 23 through the 25th at Caesars Forum while also offering a hybrid option. It is an excellent way to build momentum in the back half of the year. And with that, we can open the call to questions.

And your first question comes from the line of Elizabeth Anderson from Evercore.

Congrats on the quarter and thanks so much for the question. I guess on my first question, given the outperformance in the quarter, obviously strong and you're pointing to a lot of things that point to continued momentum in the back half of the year. Why not raise the guidance? I know you guys obviously pointed to being at the upper end of that, but it would be helpful to hear your thought process around that a little bit more.

Yes, good question, Elizabeth. From a macro perspective, we feel really good about how the business is tracking. The execution by our teams has been solid all year. The progression of the business, as demonstrated by the last several quarters, is consistent. Also, if you remember, we were the first company that provided guidance at the beginning of this year. Right after the first quarter, given the performance we had in Q1, we actually raised our guidance in a meaningful way for the rest of the year. In Q2, we performed very much according to our expectations. It was a solid quarter, and we believe the second half is going to be better than the first half. But as I pointed out in my prepared remarks, there are a few things to keep in mind and we talked about this in Q1. First, we have investment spend that we moved from Q1 and partially from Q2 into the second half of the year because we didn't spend at the pace we were planning to spend in the first half of the year. Those investments are intended to fund very important priorities for us, for example, clear aligners. Our clear aligners business, as we discussed, is launching aligners in other countries. We are also making investments in our implants. We continue to make investments in our digital capabilities, both in terms of go-to-market strategy and products that are important for our customers as well as internal infrastructure. And then I also mentioned this in my prepared remarks, there is an impact from a planning perspective resulting from our change in assumptions relative to the euro exchange rate. When we provided guidance at the beginning of the year, one of the assumptions was that the euro would be at the 1.22 level, and we have not seen that this year. For the remainder of the year, we decided to change the assumption and now we are using 1.18. That change in assumptions represents about $0.05 in the second half of the year. So when you look at all of those pieces and do the math, I think we feel good about being at the top end of our range. We always want to do better, but we feel good about the consistency in our results and performance this year. So for all those reasons, that's why we have kept the guidance where it is now.

Got it. That's very helpful. And just talking a little bit about the implant relaunch. How do you guys see that integrating with your One DS program? I assume that's something that you might talk about as we approach DS World or at DS World.

Yes, Elizabeth. Implants is going to be a big feature of DS World because we're really trying to talk about being the first digitally native implant company. When we start talking about CEREC and the ability to do a dental scan and whatnot, you're going to see a fair amount of integration of our digital technology with easy-to-use treatment planning, principally aimed at the general practitioner as a way of giving them a lot more confidence stepping up from doing some procedures to making it a regular part of their practice. So yes, you're going to see a fair amount of that at DS World. DS World is going to feature a pretty exciting lineup of new products, whether it's what we're doing in the endo space or the restage of our implant business. I don't want to undersell the CEREC 5.2. The folks who have been using this for a while really say it's like almost a new product because it cuts the time you need to do a scan, enhances accuracy and when we're adding specific treatment planning around things like dental scanning, doing a real integration with SureSmile 7.7, we're really trying to make digital workflows at the heart of everything we do.

Your next question comes from the line of Jeff Johnson from Baird.

Don, I'd like to take your pulse maybe on kind of the two-year growth rates. In the first quarter, we had you kind of versus 1Q '19 at about 7%, maybe a little north of that, as Jorge said today about just over 3%. Your commentary about the market is continuing to improve, and that seems consistent with our checks. So I'd just like to better understand why maybe that two-year growth rate came in a few points. It seemed like it was pretty evenly split across all three of your geographies. We have all three of them maybe three to five points slower on a two-year basis versus 1Q. So just help us understand that dynamic.

Yes, Jeff. Q1 came in very strong. I think that was the quarter that everybody felt that things had returned to some semblance of normality and there was a fair amount of catch-up across the board. As we look at Q2, we saw a pretty consistent performance across consumables and T&E. Jorge called out our Wellspect business, the healthcare business, which wasn't really impacted by the pandemic, so that part of the business shows more normal growth compared to the significant dental growth rates of triple digits. One other point: when you start looking versus 2019, remember Q1 and Q2 in 2019 we were coming off the Primescan launch, and we were actually a little bit back ordered with a lot of that delivered in the first and second quarter. Also, in consumables, we had begun to implement a comprehensive program to change how we promote things and focus more on One DS-type programs aimed directly at creating retail demand rather than wholesale activity. We were working through that program in 2019, and the pandemic distorted the timing. So now when you're looking at '21 versus '19, we're working through that comp, which might have been a little bit higher in '19 versus what we're seeing now as we level load and focus on One DS as a preferred promotional program.

Understood. And just as a follow-up question on Byte. I try to ask you this question each quarter, and you defer, but let me ask it this way. The 19% acquisition growth in T&E — is it fair to think about that 19% acquisition growth in T&E specifically largely or the majority of that being driven by Byte, and would that suggest sequentially Byte stepped up probably 20% plus? Is that reasonable as well?

Yes.

Your next question comes from the line of Tycho Peterson from JPMorgan.

Don, I want to go back to the implant relaunch. I'm curious how much of this is trying to revitalize growth from new products versus reorganizational changes? How are you thinking about premium versus value? Can you give us a sense of how material you think this could be to the business over the next couple of years?

A couple of things, Tycho. First, we've been very public about saying we're unhappy with our implant performance and we said it was a two-stage path: get back to growth and then grow faster than the category. Historically, we've been fairly balkanized around our implant approach. We had multiple premium brands and we also have a very competitive value brand in MIS that's been growing at, if not faster than, the market. We also have our custom abutment business, Atlantis, which is growing well. So when we step back, we realized we have an aggressive new product set and digital programs. We've dovetailed the new products with the digital offerings and we've upgraded Simplant and integrated it with CEREC. When we put this all together, we think it gives us the opportunity to reset our brand image and our promise across the marketplace. I believe it will be very significant. If we grow the implant business at market levels, that would be significantly higher than what we performed at in the last two to three years. It's not going to happen instantly, but as we start exiting '22, we want to be extremely competitive and growing. Regarding premium versus value, they go hand in hand. MIS has been growing faster than our premium business. With the relaunch, we'll accelerate the premium side and we'd like to see both of them growing at market levels.

Okay. And then a follow-up on the ortho outlook. There's been some concern over web traffic dropping off at Byte, but it sounds like the business is doing well. As we think about that $300 million target you laid out, Propel now gets added. Although small today, how much of that $300 million target do you think will be from Propel in a couple of years?

Tycho, for this year, the impact from Propel is very minor. It is mostly a vertical integration acquisition. We have many ideas for that business and ways to deploy it across the portfolio, including SureSmile International. We're working on those plans, but we won't see the impact from those efforts until 2022. I wanted to add one other comment since you mentioned unique visitors and some concerns. Byte is performing as we expected it to. One of the things we were excited about with the business is that among their unique visitors there's an opportunity to focus on segmenting the traffic — not all unique visitors are the same. We're focusing on better targeting over time. The business is performing above expectations and that incorporates some of the changes we're making. We get excited about Byte because it represents an opportunity to reach underserved populations that aren't necessarily regular dental patients. If someone spends close to $2,000 on a Byte treatment, we want to help them get value from that procedure, have them see their dentist, get a cleaning, and understand retainer needs and other follow-ups. One of the attractive aspects of Byte was the ability to reach underserved populations that weren't exposed to dentists, and we think we have a unique opportunity given our role to bring them into the dental fold.

Great. Last one. Given you're keeping guidance unchanged due to uncertainties around the pandemic, what are you hearing from dealers about inventory levels and case loads going back up? Also, what are you hearing from DSOs about managing a broader range of practices through the next wave of the pandemic?

Tycho, DSOs are telling us that traffic is getting pretty close to 2019 levels. It depends on region and exposure to different parts of the country, but for the most part it's a couple of percentage points versus 2019. The dental community believes the vaccine rollout and the fact that many people haven't been to the dentist in 18 months will lead to a steady recovery. Even if the Delta variant forces some restrictions, the dental community has learned to deal with that and proactively reach out to patients to assure them about safety. Regarding dealer inventory, we've been very happy with our dealer partners. They've done a good job helping us buffer radical demand swings. A year ago it was basically shut down and now we're back to 2019 levels. Our customer service levels as we track them are pretty good. Dealers have been challenged to maintain inventory because their planning often looks back six to nine months, which incorporated pandemic-related reductions. We're working with them every day to make sure they're getting adequate inventory to service customer needs. That's an ongoing process, and dealers are in the best position to comment on aggregate inventory levels, but we're actively supporting them.

Your next question comes from the line of Nathan Rich from Goldman Sachs.

Don, maybe high level — thanks for all the details on the new products coming in the back half of the year. It seems like there's a greater deal of innovation than in a normal year and demand for digital technology remains strong. Do you feel 4% to 5% is the right benchmark for top-line growth next year as you get the benefit from these launches? What are the main factors to consider for growth in '22?

We're comfortable with four to five percent. Digital will be really important and we think we're well positioned in implants. We also have opportunities with SureSmile and Byte. There are parts of the business that may be more challenged, such as exiting traditional analog lab businesses. Six months ago we talked about three to four, now we're talking four to five. We want to exceed that target, but right now four to five remains a reasonable, disciplined benchmark. The back half of 2022 should see more benefit from the introductions like vPro that will support growth.

Appreciate that. Jorge, can you add more detail on the supply chain pressures and where you're seeing them and what to expect in the back half of the year?

Nathan, financially we have been able to manage the challenges well. The supply chain team has done an outstanding job of managing situations like some risks of supply disruption relative to certain electronic components. The team has handled those well. We are seeing inflationary pressures on shipping costs and the team has managed those as well. Overall, with COVID, there are certain suppliers and parts of the economy that are not back to normal production levels. Those are things we are watching closely. All of our projections and guidance include the risks as we see them. For the most part, the team has managed these situations well, but it's worth mentioning because it's happening across the board.

Your next question comes from the line of Jason Bednar from Piper Sandler.

Congrats on the quarter. Not long ago, you announced private labeling of SureSmile to Aspen. We're curious how that partnership is going so far and how uptake has been in the early launch of that private label. Also, is that something you've already baked into your guidance or is that incremental?

Actually, we didn't announce that ourselves; there has been discussion in the marketplace. We're supplying Aspen and we're proud of the partnership. They provide a great level of products and services to their customers, and we're proud to partner with them. For how it's going, Aspen would be best to comment. In terms of whether it's baked into our numbers, yes. We've given general numbers about what we think our clear aligner business will look like between Byte and SureSmile and those numbers are incorporated in our guidance.

Great. And a follow-up on Byte. Can you provide color on your marketing efforts for the balance of the year and into 2022 to stay competitive with DTC brands that are pushing marketing and advertising?

We expect marketing to be competitive in the U.S. We have been very focused on paid social but we're expanding into other areas such as search engine optimization and other channels as we bring Byte more into the dentist office. We have new product updates coming. With Propel now part of our business, we'll differentiate with their vibration technology which makes the product differentiated in the marketplace. Looking into 2022, we think clear aligners still have a lot of room to grow — penetration of eligible patients is still early. Byte also has application internationally. One of the things we want to do is bring the traffic we generate with Byte into a curated dentist network, many with Primescan, so patients get follow-up care and retainers and potentially start an ongoing relationship with a dentist. We believe less than 80% of Byte unique visitors have a regular relationship with a specific dentist, so there's opportunity there.

Your next question comes from the line of Michael Cherny from Bank of America.

Don, you mentioned a few new product launches around DS World this year. How should we think about the revenue impact from DS World relative to prior years and versus what's embedded in the guide? Or is that more of a '22 theme?

Last year we ran a virtual DS World, and purchase patterns were spread out over three to four months. This year, we believe we will have a very successful in-person DS World with strong promotions and a full new product lineup. How it compares to 2019 will take some time to assess since this is the first big global dental event since the pandemic. We have close to 200 continuing education courses and sign-ups are tracking with 2019. Regarding revenue impact, the new products fall into three groups: implants, endo and SureSmile. Implants won't be a spike; equipment launches generate spikes, but implants and endo will have more gradual impacts. If we get everything rolled out globally by the end of Q1 2022, some of the impact will spill into 2022, so I view much of DS World's revenue impact as a back-half effect rather than concentrated entirely in the remainder of 2021.

Your next question comes from the line of Lisa Garcia from Wolfe Research.

Congrats on the quarter. You mentioned the rebound in preventative and it sounds like the U.S. is almost at pre-pandemic levels. Can you confirm that's what you're seeing? Also, could you discuss what you're seeing across other geographies on the preventative side and how you're thinking about that trajectory with respect to the guidance and into '22?

One of the reasons we mentioned preventative is because it's a good barometer for overall dental office traffic and volume. It's been great to see that category rebound well globally versus 2019 and 2020. There are a few countries where the situation is still complicated with restrictions, but in most markets the category is performing well relative to 2019 and that supports our guidance assumptions into '22.

Great. And regarding Byte and bringing manufacturing in-house, can you remind us of the timeline and what the incremental opportunity is for bringing the product in-house?

We are working on bringing Byte manufacturing in-house and expect that to happen in the Q1 2022 timeframe. The economic benefit from that in-sourcing is already factored into the projections we have for the foreseeable future. In 2021, there is essentially no impact. Beyond that, this was part of the acquisition business case. We'll combine manufacturing capabilities with our SureSmile footprint and achieve synergies. So it's part of the plan and included in our outlook beyond 2021.

We've got time for one more question.

Your last question comes from the line of Yi Chen from H.C. Wainwright.

We wanted more color on the FastTrack mobile app acquired from Propel. Are you developing it to be applicable to multiple clear aligner assets in your portfolio? If so, how are you doing that and will the app launch coincide with the rollout of vPro?

Mason, thanks. Yes, the app is exciting and we will use it across both Byte and SureSmile. It gives us an opportunity to monitor use of the vibration technology and creates a more interactive platform with our customers. We will roll it out as part of both Byte and SureSmile — SureSmile will get it in Q4. We don't necessarily view it as a separate app long term; it will be part of an ongoing integrated customer experience. Propel had sold the app beyond the U.S., and we will continue offering the vibration technology and the app to orthodontists and general dentists as a separate product if they want to combine it with their clear aligners. The app helps us nudge patients — if someone hasn't used their vibration device for 7 to 10 days, we can remind them of the benefits. We think it's an important part of differentiating the post-purchase experience for both SureSmile and Byte customers over the long term.

Sounds good. Thank you and congrats on the quarter.

Thank you.

All right, that concludes our call today. Thank you all for participating. Have a nice day.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.