DENTSPLY SIRONA inc (XRAY) Q3 2021 Earnings Call Transcript

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DENTSPLY SIRONA inc (XRAY 0.28%)
Q3 2021 Earnings Call
Nov 4, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Q3 2021 Dentsply Sirona Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

Now it is my pleasure to hand the conference over to Andrea Daley, VP, Investor Relations. You may proceed.

Andrea Daley -- Vice President of Investor Relations

Thank you, Brian, and good morning, everyone. Welcome to our third quarter 2021 earnings conference call. I'd like to remind you that an 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 and certain assumptions and expectations on 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 remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about 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 now like to turn the call over to Don Casey, our Chief Executive Officer.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Thank you, Andrew, and thank all of you for joining us this morning for Dentsply Sirona's third quarter earnings call. Overall, we continue to be pleased with the recovery in the dental market, how we are operating and our prospects for growth in the future. During this quarter, our top line showed strong growth versus both 2020 and importantly, against the pre-pandemic level in 2019. This growth was seen across most business units and regions.

And looking at the remainder of the year, we have good momentum, but are mindful that the pandemic remains a key variable. Before we get into the details of the quarter, I did want to acknowledge the entire Dentsply Sirona team. Throughout the pandemic and now in the recovery phase, they have remained focused on delivering for the customer, disciplined in how they operate and committed to making progress against our strategic goals. It is a privilege to be part of this group.

Moving now to Slide six. As I mentioned, our financial performance in the third quarter was quite strong with revenues reaching $1.069 billion. This represents a robust 21% increase on an organic basis. Our operating margin was 20.2% versus 22% in the prior year as SG&A and R&D investments increased to reflect the recovery in the market as well as our commitment to innovation. Adjusted non-GAAP EPS was $0.68, that is an increase versus $0.67 a year ago. Cash flow was $172 million for the quarter.

To provide more details around the quarter, I will now turn the call over to our CFO, Jorge Gomez.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Thank you, Don. Good morning, and thanks to all of you for joining us to discuss another strong quarter in our fiscal year 2021. 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.

In the third quarter, we delivered strong revenue growth across the business in both consumables and T&E. The business delivered organic revenue growth of 21.1% and reported growth of 19.4%. Because the pandemic makes it difficult to gauge growth, I want to point out that we also posted robust organic sales growth versus 2019 pre-COVID levels. Compared to the third quarter of 2019, reported sales grew 11.1% and organic sales grew 10.7%, driven by growth in both segments and across all regions.

This performance against the 2019 baseline confirms the steady recovery trend we have seen in 2021. Gross profit was $624 million or 58.4% of sales. Our margin rate remained steady, reflecting a balanced contribution from all of our businesses and a more normalized mix. Looking back, we have delivered 150 basis points of gross margin expansion since Q3 2019, the pre-COVID baseline, attributed to portfolio optimization and our efforts to simplify the organization over the last few years. As you all know, the global supply chain environment continues to be a challenge in terms of cost, availability of components and labor across industries. So far, we have been able to meet demand at a normal pace and continue to work on various operational strategies to minimize the impact to our customers and to our P&L.

Now turning to SG&A. In the third quarter, we had expenses of $373 million or 34.9% of sales. This ratio remains below pre-COVID 2019 levels, reflecting the benefits from our efficiency improvement initiatives. Quarter-over-quarter, SG&A increased as we ramped planned SG&A investments, particularly in sales and marketing to support our growth plans in strategic areas, including clear aligners, implants and digital capabilities. Q3 spending on R&D was up 31.6% year-over-year to $35 million. We expect this level of increased investment to continue as we are committed to delivering innovation and great solutions to our customers. As a result of the heightened emphasis on R&D over the last few years, we are pleased to see a much healthier solutions pipeline, as Don will discuss later.

Turning now to profitability. Operating profit grew to $216 million versus $197 million last year. Operating margin was 20.2%. Looking back, we have delivered 230 basis points of operating margin expansion since Q3 2019, the pre-COVID baseline. We have expanded margins and we have also made meaningful investments in our business, which are essential to fund sustainable long-term growth initiatives. Net interest and other expense increased versus last year mainly due to the impact from foreign exchange fluctuations.

Regarding taxes in the quarter, our effective tax rate increased to 23.4% from 20.3% in the prior year quarter, primarily due to the geographic mix of pre-tax income and our continued business recovery from COVID. Turning to earnings. EPS was $0.68 versus $0.67 in the prior year quarter. Moving to segment performance. Versus the third quarter of 2020, Consumables and Technologies & Equipment grew 15.9% and 25.3%, respectively. Both segments posted a strong growth across all product categories. The Consumables segment had sales of $440 million, an organic increase of 15.9% versus the prior year.

Overall growth was strong across all regions and in all categories, most notably within the endo and resto parts of our portfolio, which represent strategic priorities for our business. This quarter, we launched ProTaper Ultimate, the first major endodontic platform innovation launched in our endo business in more than five years. Market reactions thus far have been very positive.

Additionally, the rebound in the preventative business, particularly in the U.S., continued in Q3. The Consumables market has been resilient, and our teams are executing well through the recovery. Currency favorably impacted consumable sales by 1.3%, offset by a reduction of 4.8% due to divestitures and discontinued products. Moving on to Technologies & Equipment segment results. T&E organic sales grew 25.3% versus the prior year with a strong overall growth in all regions and product categories. Growth was most notably driven by the digital category and implants. There continues to be a strong momentum on increasing digital capabilities within dental offices.

Demand is high for digital devices such as Primescan and imaging equipment such as our new Axeos unit. We are seeing a growing trend in dental offices upgrading from 2D to 3D units, and we are observing this trend in all global markets. Our Clear Aligners franchise drove a strong year-over-year growth this quarter. The aligners market continues to grow faster than most categories, and the aligners business is a key contributor to our growth strategy. In the dentist directed channel, SureSmile continues its expansion domestically and internationally. In addition, the new software we recently launched has been positively received by the market due to its significant user experience enhancements.

The upcoming launch of VPro will be another key differentiator for our SureSmile offering. As you may recall, when we acquired Propel, earlier in the year, we indicated our intention to utilize it for SureSmile as well. SureSmile is on track to meet our run rate goal for the year. After a very strong first half in 2021, the DTC channel experienced softness in Q3. We believe this is largely attributed to COVID recovery dynamics and seasonality. Given the run rate we are seeing for Byte in the second half of this year, there is a possibility we may not fully achieve the annualized run rate goal for this year.

DTC is an exciting new category in the dental industry and Byte is strategically positioned for growth with its focus on customer experience and key differentiators such as HyperByte and high engagement with customers through the entire aligner journey. Lastly, within T&E, currency favorably impacted sales by 1.2% as well as a benefit from acquisitions of 7.7%, offset by a reduction of 9.4% due to divestitures and discontinued products. Now turning to financial performance by region during the third quarter. U.S. sales were $399 million, a growth of 25.3% versus last year.

Organic sales growth was 20.1%. U.S. dental sales volumes remain at close to normal levels in both segments despite COVID variants that spiked late in the quarter. European sales were also $399 million, a growth of 13.6% versus last year. Organic growth was 17.8%. Similar to the U.S. sales, the majority of product lines in Consumables and T&E are running at pre-COVID levels or better. Rest of the World sales were $271 million, a growth --

Questions and Answers:

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Jeff, I'm going to stay away from giving numbers for Q4. But I think we have been pretty transparent with respect to the softness that we saw in Q3 and the fact that because of that softness in Q3, we think there is a chance we were going to miss our $200 million goal for the year run rate for Byte. So that basically explains what we are seeing right now in -- with Byte.

Jeff Johnson -- Baird -- Analyst

Yes. And Jorge, I mean, just to follow up on that. I've got you right now at about $260 million, $265 million run rate of the third quarter just kind of continues in the fourth quarter. Is that at least ballpark kind of how we should be thinking about it?

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

I think I said SureSmile is very much on track to meet or exceed the $100 million run rate. And then yes, Byte is a little bit behind. So I think ballpark, you're probably close.

Jeff Johnson -- Baird -- Analyst

Fair enough. Thanks, Jorge.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Thank you. Next question please.

Operator

Thank you. Our next question will come from the line of Yi Chen with H.C. Wainwright. Your line is now open.

Yi Chen -- H.C. Wainwright -- Analyst

Thank you for taking my question. Could you comment on how long you think the supply chain issue can persist? And whether you expect the issue to involve both on the manufacturing side and on the logistics side?

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Yes. Thanks for the question. Good morning. Listen, it's hard to predict how long the supply chain issues are going to last because again, this is not something unique to the dental industry. This is impacting pretty much all manufacturing industries globally. So we are a relatively small piece of that big, big equation. We are taking a lot of actions to minimize the impact. Procurement doing a lot of great work trying to identify new sources for certain components. We are renegotiating certain contracts ensuring that we have access to supply for some key components on a predictable basis. So that's all short-term things that we're doing.

I think there are some more long-term solutions that are somewhat related to the supply chain issues, but also related to our desire to be more efficient and improve the margins of our products. So for example, in many cases, we are harmonizing certain products or components that we were sourcing from different source -- from multiple sources. We are now trying to consolidate. We're trying to harmonize the design of these components and that should help us improve the reliability of the supply.

And then we're trying to make sure that we look at the balancing of our manufacturing operations, ensuring that we have at the right time, the right components to ensure that the lines are working efficiently for predictable periods of time as opposed to stop and starting based on unpredictable patterns of supply. So there's a lot of things going on. And the -- as I said before, the supply chain team is doing a great job. And that's why, so far, we have not impacted our ability to manufacture products.

Yi Chen -- H.C. Wainwright -- Analyst

Got it. Do you expect your inventory level to increase in the coming quarters?

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

I don't think so. No, we watch inventory very closely, our internal inventory, inventory in the channel. And our objective at all times is to ensure that our manufacturing process is smooth. And the worst thing that you can do for any manufacturing process is to move inventory levels too drastically from period to period. So our goal, at all times, is to keep inventory levels relatively stable. And our actually long-term goal is frankly to decrease days of inventory, and that's a key internal goal that we track and measure very closely.

Yi Chen -- H.C. Wainwright -- Analyst

Thank you.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Thank you. Next question.

Andrea Daley -- Vice President of Investor Relations

Next question.

Operator

Thank you. And our next question will come from the line of Jason Bednar with Piper Sandler. Your line is now open.

Korinne N. Wolfmeyer -- Piper Sandler -- Analyst

Hi. This is Korinne on for Jason. Thanks for taking the questions. So first on SureSmile. And, I guess, the clear aligner business more broadly. Can you provide some more color on some of your marketing and DTC plans here for the remainder of the year and into next year? What level of investment should we expect here? And just any color there would be helpful.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Sure. On SureSmile, the program that we're running today is about how we see it. We're looking at pulling some different -- slightly different levers in SureSmile, that will include some DTC. But from an overall P&L construct, nothing radically different about that. On Byte, Byte, there's a lot of levers. I mean, obviously, paid social is a big deal, and we obviously follow that very closely. But one of the things we've done since acquiring Byte is really helping them look at search engine optimization and how do you do a better job, creating content that's really meaningful to potential customers.

We have a very aggressive affiliate marketing program, and we continue to have a pretty good program to aimed at insurers. So as we think about that, the level of marketing within Byte is we don't expect it to change. We've been very disciplined like we're not going to go chase unprofitable volume, and that's been a key thing for us. But the also -- the other thing that we're very mindful of, we think it's got a really good runway in front of it.

And let's make it less reliant on a single way paid social and let's broaden its exposure to anybody looking for to do a DTC clear aligner through other means. So again, within the overall construct of both the clear aligner P&L, total franchise P&L as well as the individual products, we don't see radical changes coming, as this quarter or as we look out over in the next couple of years.

Korinne N. Wolfmeyer -- Piper Sandler -- Analyst

Helpful. Thank you. And then just one last one for us. Can you speak to some of the early impacts you've been seeing from DS Activate? I mean, I know it's early, but can you share how many docs have taken advantage of this program? And is there any pull-through that you've been seeing so far from that?

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Yes. DS, we've been really happy with DS Activate, really happy. And part of DS Activate is we actually have people come in and physically attend our academy. And you know it's going well when you can't find a parking place prior to your earnings call because the doctors are all here for a Thursday activates. So without giving you specific numbers. We believe -- and that program is principally North America, it's going well.

Andrea Daley -- Vice President of Investor Relations

Next question, please.

Korinne N. Wolfmeyer -- Piper Sandler -- Analyst

Thank you.

Operator

Thank you. Our next question will come from the line of Justin Lin with William Blair. Your line is now open.

Justin Lin -- William Blair -- Analyst

Hey, good morning. Just a quick question for me. So the high end of the organic growth target of 22% to 25% you gave for the full year, I think, implies essentially flat year-over-year growth in Q4, if that is correct? Just trying to understand the puts and takes here. I initially thought it might have something with a softer T&E quarter, given early orders pulled into Q3, but that doesn't sound like the case base on what you said earlier. So any color you can give here would be awesome.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Justin, thank you for the question. No, I think our -- if you go to the 25% end of the range, actually, from an organic growth perspective, the implied growth would be close to 5%.

Justin Lin -- William Blair -- Analyst

Okay. Okay. Maybe just to check a map here. And second question for me would just be any update on what you're seeing in other regions outside the U.S. in terms of patient volume and spend. Just trying to think about what you're including in your guidance from a geographic perspective.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Thank you. There is nothing really major to highlight about regional performance other than what I said earlier, which is, for example, in the third quarter, all regions performed really, really well. And we are not seeing any deviation from that. COVID continues to be a little bit of a shadow there. Do you see a few small markets, for example, Australia, New Zealand, parts of China, where there are lockdowns. But honestly, those lockdowns have not affected our sales in a material way because those markets are small for us. So the -- our expectation in the fourth quarter from a regional standpoint is a continuation of what we saw in Q3.

Justin Lin -- William Blair -- Analyst

Got it. Thank you.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

You are welcome.

Andrea Daley -- Vice President of Investor Relations

Next question please.

Operator

Thank --

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

And bringing all the assets of Dentsply Sirona together to help simplify things for the dentist. It starts with moving to one brand name, Dentsply Sirona implants. It includes adding tools to Primescan that actually allow for edentulous scanning, a real breakthrough, while also advancing innovative multi and single tooth replacement capabilities.

It includes a Simplant treatment planning refresh and a comprehensive continuing education program to support a digital approach to implants. It allows us to deploy Lucitone to enhance performance of digital ventures. We have a best-in-class bone growth product with OSSIX. The team here is also really excited about the launch of PrimeTaper. This is an immediate load self-tapping product that is built off a well-known procedure. The system has launched in the U.S. and EMEA to excellent initial reviews. And this is the kind of integrated innovation across a critical procedure that we believe transforms dentistry. We're also adding new products to our MIS value implant business to continue building momentum in this rapidly growing franchise.

At DS World, we also launched ProTaper Ultimate in the endodontic space, as Jorge mentioned, representing a major innovation in this important therapeutic area. It's more than a file, and it includes a great cleaning product as well as a new obturation system that includes a new bioceramic sealant. Early users of the system, which we call the trifecta, are really excited about the ProTaper Ultimate system as it simplifies the procedure significantly. We have also launched a major software upgrade in CEREC called 5.2 as well as SureSmile 7.6. CEREC 5.2 is so powerful that it makes Primescan feel like a totally new product. And it takes its category-leading speed and accuracy to new levels.

SureSmile 7.6 makes major progress around our user interface. We also have a full slate of news for our clear aligner franchise. As we have two brands, we are maximizing the investment in both R&D and manufacturing by offering the innovations across both the SureSmile and the Byte businesses. Innovations in this space include our vibration technology, VPro, and HyperByte for improved comfort. We also are launching new whitening products in the near term. To finish the discussion around innovation, there was major progress in 2021 that will pay dividends going forward. I would also note that we have a very robust pipeline going forward that we will bring to the market in the future.

Moving now to Slide 22. To summarize, our strong performance year-to-date gives us confidence going forward for the remainder of 2021. We have good momentum leading into the future. Our results reflect the underlying resilience of the dental market and our team's disciplined performance against our operational goals and progress against our key strategic priorities.

Based on this, as Jorge said, we are raising our '21 earnings outlook. Going beyond the quarter-to-quarter discussion, we also believe that Dentsply Sirona is well positioned to transform dentistry and deliver sustainable growth going forward.

And with that, we will now open the call to questions.

Operator

Thank you. [Operator Instructions]. And our first question will come from the line of Elizabeth Anderson with Evercore.

Elizabeth Anderson -- Evercore -- Analyst

Hey, guys. Good morning and thank you so much for the question. I was just wondering if you could go into a little bit of detail perhaps on the T&E segment at what your -- what's implied in your guidance for the fourth quarter? I know off of some of the people were -- had some questions about when revenues were getting recognized off of DS World and some delays in shipments in some equipment, etc. So I just wanted -- installation. So I just want to make sure I'm understanding that portion of it.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Good morning, Elizabeth. Thanks for the question. Yes, what we're seeing for T&E going into the fourth quarter is along the lines of what we said in our prepared remarks, which is, we have great momentum. There is great demand for Primescan, great demand for Axeos and imaging in general. The timing of sales relative to DS World, most of those sales actually happened in the fourth quarter. We -- there was a lot of great excitement. And so in our guidance for the fourth quarter, we are including pretty substantial growth for CAD/CAM, for imaging in general. So the performance in that business -- that part of the business continues to be strong.

Elizabeth Anderson -- Evercore -- Analyst

Okay. Thank you. That's helpful. And maybe just switch over to the clear aligner. I know you said that maybe there was a slight amount of weakness in sort of the DTC market. Can you go into maybe what you think is driving that? And then maybe contrast it to how you're seeing SureSmile.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Yes, Elizabeth, thank you for the question. the DTC segment obviously benefited from the pandemic. And as we are kind of entering this recovery phase, we're seeing across not just the DTC clear aligner space, but a number of consumer businesses. Consumers have choices in terms of where they're spending discretionary income. And all of a sudden, people are going on vacations and other things. So we think we're seeing a little bit of seasonality, and we're seeing some competition for discretionary spending among our core target audience.

What we think going forward, first is that, look, we think clear aligners -- our clear aligner strategy is predicated on, look, we've got a DTC space, and we -- DTC entry, and we have obviously a directed dentist entry. And we'll look to see growth in both of those segments. As what we saw in Q3, again, a little bit of seasonality. We think this is a little bit of consumers looking at other discretionary spending. I would tell you, we were -- obviously, when we sit down and prepare all this stuff, we were reflected on the fact that in basically, the second quarter 2018, we had 0 sales in clear aligners. And today, we've got a -- if it was an independent SBU, it would be one of our more significant franchises. And one that we expect to continue providing a lot of growth into the future.

Elizabeth Anderson -- Evercore -- Analyst

That -- and that those comments you said, I know that you focused mostly on the DTC market. But with SureSmile, would you say you're seeing similar type trends? Or do those diverge anywhere?

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

No, they're a little bit divergent. SureSmile, it continues to perform as we thought. It's demonstrated very, very consistent results. We're optimistic as we begin to push that outside the U.S., and we have made progress doing that, that we expect to see continued growth on SureSmile. The plans for Byte are also to begin to pick that up. I mean we're looking at Byte in a couple of different ways. I mean the first is we have new products that are coming in that direction, Part one; Part two is we believe that there's opportunity to expand this outside the U.S.

We think the DTC channel in places in Asia and other areas is doing pretty well. So we really think that we've got a great product and want to participate in those regions. And then one of the things that we remain optimistic about is we really think that Byte is going to play a role with our relationships with the professional. Obviously, when people come in to Byte, not everybody is eligible for Byte, they can be referred over to Dennis, that we believe that would have Primescan and other things and go right into SureSmile. So the Byte to us is a strategic play that gives us opportunities to grow in a number of different areas.

Elizabeth Anderson -- Evercore -- Analyst

Okay. Cool. That is very helpful. Thank you very much.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Thank you. Next question please.

Operator

Thank you. Our next question will come from the line of Tycho Peterson with JPMorgan. Your line is now open.

Tycho Peterson -- JPMorgan -- Analyst

Hey. Thanks. Don, I hate to nitpick after a beat and raise quarter. But just following up on the last question. You did have targets out there for the clear aligners $300 million for the year. So where are you trending on Byte versus that $200 million Byte target that you've laid out? And how do you know it's not a competitive issue? Obviously, the DTC channel has gotten pretty competitive.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

A couple of things, Tycho. We're not going to give you the exact numbers on Byte, but it's a little bit soft. I mean we're not talking a major issue. We want to be as transparent as we possibly can. So we're telling you guys what we're seeing. We don't think it's a competitive issue that's where we feel like we're losing ground to other entries based on a lot of different things. Obviously, we're surveying in the market. We obviously pulse and watch what's going on with unique visitors. We -- our process involves somebody coming into the franchise, buying a diagnostic kit and then hopefully buying aligners. So we have an opportunity to really talk to people and see where they're departing the funnel. And at this point, we really don't feel --

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

-- of 20.1% versus last year. Organic sales growth was 27.8%, reflecting recovery in demand across Consumables and T&E.

The APAC region has delivered continued growth for our business throughout the entire fiscal year 2021. Next, I'd like to cover cash flow. In the third quarter of 2021, we generated operating cash flow of $172 million and free cash flow of $137 million. During this quarter, we paid our regular dividend and repaid long-term debt of $296 million, which matured in July. We finished the quarter with cash on hand of $281 million. Year-to-date, we have generated $435 million in operating cash flow and $334 million in free cash flow.

On a year-to-date basis, we have deployed more than $248 million to fund strategic acquisitions, including Datum and Propel Orthodontics. We have also returned a total of $158 million to shareholders through dividends and share buybacks. Our financial position and balance sheet remain strong. We are well positioned to continue to deploy capital strategically. Now let me provide an update on our financial expectations for 2021. Based on the solid performance of our business year-to-date and the current market trends, we are increasing our estimates for 2021 as follows.

We are tightening our revenue outlook by increasing the bottom of our range. We now expect revenues to be in the $4.25 billion to $4.3 billion range. With respect to EPS, we are increasing and narrowing our estimates for fiscal year 2021. The new EPS outlook range is now $2.87 to $2.92. This range is based on a new assumption for the euro to USD rate of 1.16. This is lower than the fiscal year '21 budget assumption of 1.22 and lower than last quarter's assumption for the second half of the year of 1.18. Given our long euro exposure, a weaker euro represents a net headwind to our P&L. Overall, we are very pleased with the current momentum in our business and our new 2021 outlook for revenue and earnings reflects that confidence.

To close my remarks, we are proud to share the progress we're making in our sustainability journey. As you may remember, we indicated a few months ago that we were taking substantive steps to advance sustainability. I am happy to report that just a few weeks ago, we share our sustainability strategy with a broad range of stakeholders at DS World, and also publish our 2020 Sustainability Report and our 2025 Goals. It is our commitment to be transparent and accountable with respect to our strategy and goals. Going forward, we will measure our progress within three sustainability verticals, healthy planet, healthy smiles and Healthy Business.

To support our Healthy Smiles pillar, this quarter, we entered into a five-year partnership with SmileTrain and committed $5 million to the organization. SmileTrain is a nonprofit organization that provides corrective surgery for children with cleft lips and palates across the world. We're excited by the opportunity to help improve oral health for children worldwide. I encourage you to visit the Sustainability Hub on our website to check out our metrics and actions within each of our sustainability verticals. We are convinced that our commitment to sustainability will deliver long-term value to our stakeholders.

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

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Thank you, Jorge. Moving on, I wanted to provide some additional perspective around our strategy and priorities going forward. Moving to Slide 17 in the presentation. Our priorities have remained consistent over the last few years, which has allowed us to stay very focused on delivering consistent results. These priorities are to grow revenues 4% to 5% long term through a combination of organic and inorganic activities. The second is to drive our margin to 22% by 2022. Essential to these efforts is the third priority, simplifying the organization to better leverage our scale as one of the largest companies in the dental space. When we meet these goals, we deliver consistent and sustainable double-digit EPS growth.

Moving to Slide 18 to detail some of the progress we've made against those priorities. Growth is our overriding priority with the objective being to deliver 4% to 5% top line increases long term. We've made important progress against this goal. In addition to the 21% growth for the quarter. Year-to-date, we have delivered an increase of 35.9% versus 2020. It is also worth noting that for the entire year 2019, the last period prior to the pandemic, organic growth was 6.1%. This kind of performance gives us confidence in our growth strategy and our priorities.

We will keep driving growth by focusing on four areas: They include building on our leading role in digital dentistry; accelerating our rapidly growing clear aligner franchise; delivering major innovations in critical areas; and building out our capabilities in faster-growing parts of the world. Our portfolio moves over the last few years also reflect these priorities and have resulted in increasing our exposure to faster-growing areas of the dental markets.

Turning to the next priority around margin expansion. We are confident that we will deliver the 22% margin goal by the end of 2022. We are realizing the benefits of a three-year restructuring plan as well as portfolio reshaping efforts. Our team also continues working on simplifying the organization, both structurally as well as how we work. A great example of this is our comprehensive enterprise modernization program under Jorge's leadership that increases the use of automation and digital tools across the company to improve efficiency and the customer experience. These efforts have helped us deliver significant headcount efficiencies, and we are on track to deliver the $250 million in savings that we outlined in 2018.

Looking out to the future, our strategy outlined on Page 19, is to develop superior integrated workflows built on diagnostic excellence, easy-to-use treatment planning and essential products that improve outcomes for patients and dental practices.

On Page 20, Dentsply Sirona's impressive digital foundation is outlined. It starts with a large global footprint in imaging with major brands like Schick, Orthophos, Gallileos and our newest addition, Axeos. Our large CEREC franchise that includes both chairside and DI is another critical component in our robust digital foundation.

As Jorge noted, coming out of the pandemic, both of these digital businesses have strong momentum as dentists globally are looking to upgrade their practices. By adding these more powerful diagnostic tools like Primescan and 3D imaging, they can incorporate more complex procedures into their practice with competence. Adding these more sophisticated diagnostic tools also creates an opportunity to take advantage of treatment planning for complex cases like implants and clear aligners. Treatment planning helps the dentists map out the entire procedure. This increases their efficiency while elevating their confidence, which can lead to better results for the patients.

Dentsply Sirona is one of the largest providers of treatment planning in all of dentistry with brands like Sidexis, CEREC, Atlantis, Simplant and SureSmile. We look at this digital foundation as one of our most important assets, and this area is a major investment priority for us. These will drive faster innovation, expanded treatment planning capabilities and accelerated progress in the areas of artificial intelligence. These efforts are now supported by over 500 software engineers within Dentsply Sirona today, that are helping us continue leading the digital dental revolution.

Moving to Page 21. Innovation is our lifeblood, and we have delivered several innovations in 2021 in key areas like implants and endo. At DS World, several of our major innovations were on display. Rather than just launching products, our customers could see our approach is based on simplifying critical workflows from diagnosis to delivering the final treatment in ways that can transform their practices. Our ability to work across the entire procedure is truly unique to Dentsply Sirona. The fact that we address so many of the key procedures gives us a real advantage as we look to become the essential partner to the practice.

A great example of this was the comprehensive restage of our implant businesses announced last month. For us, it's not just about launching a new screw and abutment. It is about rethinking the entire implant workflow --

Operator

Thank you. Our next question will come from the line of Michael Cherny with Bank of America. Your line is now open.

Allen Lutz -- Bank of America -- Analyst

Hi. This is Allen in for Mike. I guess going to the operating margin, our target for '22 at 22%, can you talk about some of the swing factors there sort of rank order? You mentioned investments in SG&A by implant rebranding, labor, supply chains, how should we think about the rank order of those themes? Thanks.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Thank you. I think there is -- there needs to be a good contribution from all areas of the P&L to reach that goal, and we feel good about all of them. So starting with the top line, we have certain targets that we want to hit. And we have been explicit about our 4% to 5% target for revenue growth. So that is an important factor. And then keeping the stability from a gross margin perspective, we have been trending very well, very steady, from a gross margin perspective. And then there are further opportunities for cost savings, both in COGS as well as in SG&A that we are actively pursuing and implementing. And a lot of them have to do with what we call our enterprise modernization program that includes process harmonization and centralization. That's something that we still have a long ways to go.

I think there is tons of opportunities from an automation perspective that should improve our cost base. And then further possibilities to optimize our footprint, both in terms of manufacturing as well as facilities in general. I think as we learn how to live with the post pandemic or new ways of doing business post pandemic, I think that there are some interesting ideas to rationalize our footprint as well. So there is tons of things. And the last thing I would mention is from a product design perspective, the teams continue to do great work trying to improve the cost of materials, trying to improve the design. So that is cheaper to manufacture and more efficient overall. So those are all important levers that we are actively pursuing. And when you add out of them together, that's where we will get about the 22% target. Great. Thank you very much.

Operator

Thank you. And our next question will come from the line of Nathan Rich with Goldman Sachs. your line is now open.

Nathan Rich -- Goldman Sachs -- Analyst

Hi. Good morning. Thanks for the questions. Jorge, maybe a high-level question. You've highlighted a lot of the product opportunities. I guess as we think about going forward, how do you think about maybe investing more aggressively to go after some of those opportunities. You now obviously also have the kind of the added dynamic of inflation cost pressures. I guess has that changed how you're thinking about the historical balance that you've seen between reinvesting in the business, but also being on the path to 22% margins. It'd be great to kind of get your sense of kind of how you're thinking about that dynamic as we head into 2022.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Yes. Thanks, Nathan. I don't think our thinking has changed pretty substantially. I think what we are facing right now is reinforcing a lot of the beliefs that we had going into this pandemic. And so that reinforcement is translating into our strong desire to invest more and move faster with respect to a lot of ideas that we have in the pipeline. And Don and I have indicated how we are really proud of the increased R&D activity that we have, what is coming out of that work. And we have a number of great ideas that we expect to bring to the market in the near future, and they are reflective of some of the important macro trends of digitization, changes in behaviors from consumers and things like that. So I think this is just again, reinforcing the idea that we had before, and it's just pushing us to move faster, and we're really excited about the opportunities, frankly. I mean, there are great opportunities, and we are really excited about trying to do all of these things faster.

Nathan Rich -- Goldman Sachs -- Analyst

Makes sense. And just a very quick follow-up. Have you seen -- I think you touched on this a little bit earlier, but I just wanted to kind of revisit. Have you seen stock in by the distributors. I know there's a lot of focus on inflation and the price increases that could be coming. Do you feel like inventory levels at all -- have changed at all with your distribution partners?

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

We don't think so. We track that closely and we manage our inventory levels in a disciplined way. And so we are not seeing that at this point.

Nathan Rich -- Goldman Sachs -- Analyst

Great. Thank you.

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

You are welcome.

Operator

Thank you. This concludes our question-and-answer session for today. So now it's my pleasure to hand the conference over to Don Casey, Chief Executive Officer, for closing comments and remarks.

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Yes. Thanks so much, and thanks for all the time you guys gave us today and great questions as always. Look, I'd summarize by saying we feel really good about a quarter. It's -- we've been doing this a long time. It's rare that you get to talk about a 20% plus organic with a beat and raise. And there's some stuff that we're very, very excited about. Jeff, really appreciate the question on implants. And when you're seeing double-digit implant growth is something we haven't seen in a long time. We feel there's tremendous momentum on our T&E business. And consumables, which is a question we typically get is, we feel that we've innovated across a broad platform. So we feel good about that. And I would just pull back a little bit out of the quarter-to-quarter discussion. It was almost three years ago to the day when we announced the restructuring.

Basically, since then, we feel that we're really on track in terms of growth. I mean, if you look at what we did in '19 and then as we get into this kind of recovery phase of the pandemic, we were hitting the margin targets that we put out. We've already delivered the headcount. We feel very good about the fact that we've created not only a more simple organization but one that's much more functional. And our team in here is really excited about the future. For those of you guys got to attend DS World, you could kind of see how we're laying things out from a procedure perspective and why we think Dentsply Sirona is really well positioned to become the essential partner in dentist practices all over the world. So I'll close it out and say thank you all and look forward to catching up in some of the one-on-one sessions.

Operator

[Operator Closing Remarks].

Duration: 50 minutes

Call participants:

Andrea Daley -- Vice President of Investor Relations

Donald M. Casey -- Donald M. Casey-DENTSPLY SIRONA Inc.-President & Chief Executive Officer

Jorge M. Gomez -- Executive Vice President & Chief Financial Officer

Jeff Johnson -- Baird -- Analyst

Yi Chen -- H.C. Wainwright -- Analyst

Korinne N. Wolfmeyer -- Piper Sandler -- Analyst

Justin Lin -- William Blair -- Analyst

Elizabeth Anderson -- Evercore -- Analyst

Tycho Peterson -- JPMorgan -- Analyst

Allen Lutz -- Bank of America -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

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