DENTSPLY SIRONA Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Byte Update: Voluntary suspension of Byte aligners and impression kits sales/marketing/shipments in late October. Conducting regulatory review, evaluating strategic options (including potential discontinuation). Swiftly reduced discretionary spending and redeploying assets.
• Q3 Performance: Revenue $951M, organic sales up 1.3% (impacted by EDS sales timing); excluding timing, organic sales down 0.8%. Pressure on implants and equipment; CAD/CAM grew due to Primescan 2 launch.
• Guidance Revision: Revising 2024 outlook due to market pressures. Organic sales expected down 2.5%-3.5% vs prior flat to down 1% estimate. Net sales range $3.79B-$3.82B. Adjusted EBITDA margin ~17.5%, down from >18% prior.
• Operational Highlights: ERP rollout complete in U.K., live in U.S. for resto/preventive in EDS; Primescan 2 launched, DS Core adoption over 32,000 unique users; CTS Orthophos SL imaging line expanded; EDS X-Smart Pro+ launched with strong reception; multiple clinical education events held.

Segment Performance

• Essential Dental Solutions (EDS): Organic sales increased 7.5%, driven by timing of U.S. distributor orders. Revenue contribution not explicitly stated but significant due to product launches like X-Smart Pro+.
• Orthodontic and Implant Solutions: Organic sales declined 3.9%. Byte aligners/impression kits revenue was ~$40M in Q3, down year-over-year and sequentially; SureSmile grew 6%. A ~$500M non-cash after tax goodwill charge impacted this segment due to macroeconomic and competitive pressures.
• Implants & Prosthetics: Sales declined mid-single digits year-over-year. Down in U.S., Europe; China declined due to volume-based procurement program comp.
• Connected Technology Solutions (CTS): Organic sales increased sequentially but declined 1.4% year-over-year. Global CAD/CAM grew mid-single digits due to Primescan 2 launch, but equipment/instruments declined mid-single digits due to macro headwinds.
• Wellspect Healthcare: Flat vs prior year quarter. Growth in Europe and rest of world; U.S. impacted by order timing from a large distributor.

Guidance

• Organic sales expected to be down 2.5% to 3.5% in 2024 vs prior flat to down 1% estimate.
• Full-year net sales in range of $3.79 billion to $3.82 billion.
• Adjusted EBITDA margin now approximately 17.5%, down from prior >18% estimate.
• 2024 adjusted EPS expected in range of $1.82 to $1.86.

Risks

• Regulatory: Uncertainty around Byte's regulatory review and potential legislative impacts.
• Macroeconomic: Pressures on equipment, implants, and elective procedures due to economic conditions.
• Competitive: Intense competition in product categories like implants and CAD/CAM.
• Operational: Continued challenges in certain geographies and product segments affecting performance.

Question and Answer

Q: Good morning, Simon and Glenn. On Byte, how long might the suspension last and cost allocation?

A: Simon: Still conducting review involving regulatory, technical, commercial, operational factors; may take time. Glenn: Byte had ~$40M revenue in Q3, dilutive to EBITDA, high OpEx, operating at loss in recent quarter.

Q: Kevin Caliendo asks about Germany sales impact and investment vs cost saves.

A: Simon: Germany represents ~10% of business; invest in growth areas like aligners, hygiene; take out unnecessary infrastructure costs. Glenn: Restructuring savings programs on track, but reinvestment in growth may affect bottom line.

Q: Jeffrey Johnson on Byte employee notices and Q4 guidance.

A: Simon: Complex situation with people impacts; Glenn: Q4 organic growth implied down high-single digits, impact from Byte and EDS pull forward.

Q: Jason Bednar on CTS CAD/CAM retail demand and PS2 launch.

A: Simon: Retail demand delta in Q3 not related to Primescan 2 launch; customer sentiment mixed, but Primescan 2 sales strong.

Q: Jonathan Block on Q4 organic growth and MA impact on implants.

A: Glenn: Q4 organic growth down high-single digits, impact from Byte and EDS pull forward; MA benefits reduction may impact implant market.

Q: Erin Wright on distribution channel and SKU rationalization.

A: Simon: Heavily reliant on distributors, working on amicable solution with Patterson; Glenn: SKU rationalization to eliminate non-revenue generating SKUs by end of year, migrate revenue-generating ones by 2025.

Q: Unidentified Analyst on SureSmile growth and SKU reduction.

A: Simon: SureSmile growing in Europe, North America excluding one partner; talented Byte team to aid SureSmile software and awareness; SKU reduction focused on Endo and Resto, no top-line impact yet disclosed.

Q: Brandon Vazquez on implants postmortem and virtual sales team.

A: Simon: Implants underperformed, need further postmortem and accountability; virtual sales team starting calls in U.S., expected to generate revenue in 2025, focusing on reaching small account tail.

Q: Unidentified Analyst on implants market growth and SKU optimization.

A: Simon: No specific 2025/2026 growth guidance on implants; SKU optimization on track, more update at year-end earnings.