DENTSPLY SIRONA Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• CEO Transition: Dan Scavilla assumes role, focuses on stability, customer experience, innovation, supply chain streamlining, and operational efficiency. Emphasizes listening to team and customers to prioritize growth areas.
• Q2 Results: Global sales $936M, down 5% reported/7% constant currency. Adjusted EBITDA margin 21%, up 360bps. Adjusted EPS $0.52, up 7%. Driven by Byte impact and cost reduction programs. U.S. sales $293M, down 18% total/excluding Byte 11%; Europe $404M, flat vs prior year; Rest of World $239M, up slightly.
• Impairments: $214M noncash after-tax charge on OIS and CTS segments due to tariffs and volume changes relative to initial investment thesis.
• Cash Flow: $48M operating cash flow in Q2, down from prior year due to timing of cash collections, inventory build, and foreign tax refund in prior year.

Segment Performance

• EDS (Endo, Resto, preventative products): Constant currency sales increased 1.1%, with growth in Rest of World, partially offset by lower volumes in Europe and U.S. Reflects stable patient traffic in major markets.
• OIS: Constant currency sales declined 19.4%, with Byte accounting for over half the decline. IPS declined double digits due to lower lab volumes and implant sales in U.S./Europe, but SureSmile rose 3.3% (strong in Europe and Rest of World).
• CTS: Constant currency sales fell 5.9%, with double-digit growth in imaging in Europe offset by declines in CAD/CAM and imaging in U.S. No significant revenue impact from dealer stocks.
• Wellspect Healthcare: Constant currency sales declined 2.5%, impacted by prior year dealer stocking order but partially offset by new product launches. Expected mid-single-digit growth for full year.

Guidance

• Maintains full year 2025 outlook for sales, adjusted EBITDA margin, and adjusted EPS.
• Q3 expected to have slightly lower reported sales due to seasonality and tariff costs, with lower adjusted EPS. Tariff impact for 2025 annualized at $80M (up from prior $50M estimate).
• Completed $550M hybrid bond offering in Q2 to enhance financial flexibility. Focuses on working down inventories and prioritizing investments in innovation, growth, and returns to shareholders.

Risks

• Tariffs: Annualized tariff headwind increased to $80M from $50M previously, impacting costs.
• Product Softness: Softness in connected technology solutions, orthodontics (Byte impact), and implants (tariffs, volume changes, Middle East volatility).
• Macro Market: Patient volumes and procedural utilization largely unchanged, with macro headwinds affecting certain regions and product segments.

Question and Answer

Q: Elizabeth Anderson asked about the broader dental market and distributor stock-up dynamics.

A: Dan Scavilla noted patient volumes stable, procedural utilization soft in electives; Matt Garth stated no significant revenue impact from dealer stocks year-over-year.

Q: David Saxon inquired about CEO motivation and learnings from prior roles.

A: Dan Scavilla mentioned opportunity to apply operational experience from prior roles (Globus, J&J) to Dentsply, focusing on accelerating the team.

Q: David Finley asked about tariff assumptions and orthodontics Byte adjustments.

A: Matt Garth said tariff annualized impact increased to $80M, and Byte patient load drop-off adjusted with $4M impact in Q2; SureSmile had 3.3% growth but U.S. had drag, with education programs to drive change.

Q: Michael Cherny discussed portfolio and inorganic vs organic growth.

A: Dan Scavilla stated Dentsply has necessary capabilities, leans towards organic growth but considers inorganic opportunistically when appropriate.

Q: Others asked about various topics including tariffs, implants, U.S. business performance, and distributor relationships, with responses covering tariff impacts, implant segment details, evaluation of U.S. business performance, and ongoing engagement with distributors for long-term strategy.