Simon Campion
President and Chief Executive Officer at DENTSPLY SIRONA
Thank you, Andrea, and thank you all for joining us this morning for our Q2 2024 earnings call. I will start by providing an overview of our Q2 performance, give an update on the previously announced transformation work, and share information about new initiatives and investments we have been planning. Then Glenn will cover Q2 financial results and our full year 2024 outlook. I will finish with a brief strategic operating update.
Starting on slide three. Our second quarter revenue of $984 million was unfavorably impacted by lower sales in our Connected Technology Solutions segment. As expected, capital equipment continued to experience pressure, largely but not exclusively due to macroeconomic conditions. Other factors included some pricing degradation and weaker-than-expected performance in certain major markets.
We delivered organic sales growth in the other three segments, Essential Dental Solutions, Orthodontic and Implant solutions and Wellspect HealthCare. We were pleased to see double-digit growth in aligners despite some headwinds, which we will discuss later. Our continued focus and investments in Wellspect Healthcare enabled us to deliver another quarter of strong growth.
For the full year, we are revising our outlook based on first half performance, FX, evolving market dynamics and the continued macroeconomic headwinds. Eighteen months ago, we announced a restructuring plan to transform Dentsply Sirona. We also communicated that this would be a journey. With our Phase one initiatives complete or well underway, we are ready to advance to Phase II to build on our progress to date and further advance our transformative agenda to improve efficiencies and drive profitable growth.
Although the macro environment has impacted the sales outlook for the global dental market, we remain committed to continued assessment of our business, adapting our organization accordingly, enhancing our efficiency and execution capabilities and investing in high-return categories, all with the goal of driving sustainable EPS growth, as we highlighted during our Investor Day.
As we said in our press release, we have identified $80 million to $100 million in annualized structural and operational synergies that are incremental to our recently completed $200 million restructuring program. We have a clear plan to achieve these synergies and expect to realize them in the next 12 to 18 months. Both our Phase one and Phase two restructuring plans are fundamentally shaping our company.
We designed these plans to improve our operational performance and drive much higher customer engagement, increase alignment, drive process and discipline, and strategically position Dentsply Sirona to win. Since announcing Phase I, we have moved very deliberately in many areas, including reinvestments in key geographies commercially, competency as clinical education, simplifying our manufacturing, distribution and product footprint, driving an intentional focus on quality, refining our new product development processes and implementing a single ERP system.
These cost-saving initiatives and reinvestments were instrumental in reestablishing positive and constructive relationships with key stakeholders of our company, including customers and investors. We remain confident that these Phase one initiatives will have a lasting impact, improving performance to drive long-term shareholder value and contribute meaningfully to our bottom line through 2026 and beyond.
As we discussed in Q1, we have been planning incremental measures to better position ourselves to achieve our profitability and EPS target. While we always believe there were additional opportunities to shape and structure our company, we prioritize the Phase one operational initiatives. We expect these new initiatives will not only improve our financial performance, but also refine our organizational structure, enhance our business processes and better align roles and responsibilities to support our objectives.
Specifically, I will discuss shortly how we are executing on new investments to reshape our structure, enhance relationships with our customers, and further strengthen our competitive position and accelerate innovation through disciplined R&D pipeline management. Additionally, we are evaluating further strategic investment opportunities, though we will not disclose these details today for competitive reasons.
We are laser-focused on simplifying our global structure by consolidating product categories within each global business segment to better align our portfolio with our customers' needs. In doing so, we are also simplifying our regional structure and reevaluating our marketing efforts across our business. We have assessed and reevaluated lower-performing businesses and geographies, and have decided to selectively exit certain countries, which we expect to complete in 2025. We expect these exits to have a $5 million impact to revenue with minimal impact to the bottom line.
We also initiated plans to reduce external spend and G&A costs by consolidating our vendor and supplier base while tightening spend control. In addition, we have developed a plan to consolidate service and support activities that, in turn, will enhance efficiency through streamlined tools and processes, which are enabled by our ERP transformation, though I'll note the time line for this particular project extends beyond 18 months.
As we've previously shared, our survey results tell us that we do not have major product gaps in our portfolio and that our company is uniquely positioned to be a partner of choice for customers around the world. These are not our words, but the words of our customers. We will continue working towards better leveraging our portfolio to drive improved performance where we have lagged the market for years. Unlocking the value inherent in our portfolio requires us to think differently, to invest strategically and to create our own demand.
So what does it mean to create our own demand? We must develop closer, more meaningful relationships with all our customers. While we have made progress here, we must continue to assess and take opportunities to advance this crucial strategic objective, when and where appropriate. Our global sales force, as you know, is a critical part of our commercial infrastructure. Moreover, the geographic distribution of dental practices, particularly in the U.S., can make reaching customers challenging and, in some cases, result in marginal return.
To augment our efforts and improve our coverage more cost effectively, we plan to increase investment in our own sales channels. As a first step, we have recruited a sales leader with a strong track record of standing up inside sales organizations around the world. By the end of Q1 2025, we intend to recruit, hire, train and deploy, at least 100 Dentsply Sirona inside sales reps in the U.S. This team will complement our field-based sales teams by connecting with customers who do not see our field-based reps as frequently as we would like.
They will focus on generating demand and funneling it through the appropriate channel, either our direct sales forces in endodontics and orthodontics for example, or through our dealer partners. More specifically, we see an opportunity to increase our in-office aligner business, particularly with orthodontists where we are underpenetrated. Our studies demonstrate a compelling value and technology proposition, leading us to increase investments in commercial and technology assets.
To enhance the effectiveness and performance of our commercial and service teams, we also intend to invest in technology that facilitates a seamless customer service and engagement experience, alongside implementing an advanced CPQ system. Furthermore, many of our direct customers would prefer to do business with our company through a robust e-commerce platform. With that in mind, we have developed a detailed plan to upgrade our offering through increased functionality and capability and are now moving into the execution phase.
Our plan incorporates many discrete areas of enhancement which we expect will improve the performance of this channel and customers' experience with our company. We expect most of these initiatives will go live by the end of Q2 2025. And this leads us to our relationships with distributors. The degree to which we partner with distributors varies around the world. We value these partners in all geographies, and we have worked hard to strengthen those relationships.
That said, changing market and competitive dynamics have impacted our relationships with certain distributors, and we are adjusting accordingly. For example, some not only distribute for us and others, but in certain areas, they compete with us directly. Others execute in manners that do not wholly align with our strategic objectives. We have and will continue to invest significantly and strategically across our businesses, introducing new products and software into the marketplace and training our distribution partners to represent our portfolio to our customers.
Through these activities, we enable distributor success, which, in some cases, is not adequately reflected in our current terms and conditions with them. With this in mind, we recently issued a nonrenewal notice to Patterson Companies under our equipment distribution agreements in the United States and Canada. We did not make this decision lightly. It reflects our desire for improved delivery and communication of the value proposition we bring to dentistry, including our evolving digitally connected ecosystem.
Our current contract remains in effect as we engage in ongoing discussions, which we hope leads to an agreement that aligns more closely with the evolving environment and our strategic objectives. To help us achieve the Phase two cost savings and advance our strategic initiatives, we have made several organizational and leadership changes, including merging North America and Latin America into one commercial team now called the Americas region.
Given their experience and track record, we are confident that the regional commercial leaders now in place and drive the necessary changes to address our operational realities, improve organizational health, and better position Dentsply Sirona for future growth. Furthermore, we announced today that as part of our leadership changes in connection with Phase II, Andreas Frank will be leaving the organization.
Andreas made many meaningful contributions in helping us establish our path forward and in executing the work we have undertaken. These changes are intended to increase alignment between our global business units and our regions, thereby creating positive momentum in our revenue trajectory, which we anticipate will improve the leverage of our other margin accretive activities.
Finally, we have been diligently improving processes in R&D to ensure that we are working on the right programs at the right time, programs that focus on unmet clinical and workflow needs for our customers. Our ongoing assessment has identified $19 million outside of the Phase two initiatives that we plan to reallocate into programs tailored to those needs, and with return dynamics that can allow us to alter the return trajectory of our total innovation pipeline.
Specifically, we are increasing investments in orthodontic software to improve the dental professionals experience, accelerating DS core capability and making further investments across our connected technology platforms. Now let's circle back and talk about our $3 EPS target. As we stated when we announced this objective, achieving this target assumes an improved macroeconomic environment.
Since announcing the target, we've continued to see pressures globally, particularly in markets where we have a significant presence, such as Germany and Australia, as well as higher interest rates persisting across many of our major markets, including the U.S. Despite the challenges already noted, the contribution of our Phase one activity to our $3 target is meaningful and within our control. This EPS target remains a north star for us, and we expect Phase two to help our path to the $3 EPS target.
We also believe, as you heard today, that it's crucial to continue investing in our business to drive profitable growth and remain good stewards of our organization as we laid out at Investor Day. In a nutshell, and while we are still fine-tuning our numbers, some of these initiatives will go towards helping us achieve the $3 EPS target, while the remainder will go towards improving our competitiveness, which we expect will drive even greater value.
Before I hand the call over to Glenn to discuss the financial results in more detail, let me add that we had a strong cash flow quarter, resulting in over $100 million in cash becoming available. We plan to return this to our shareholders through additional share buybacks in Q3 of this year. And I'll highlight that in total, we now plan to return about $380 million to shareholders this year through share buybacks and dividends.
Now over to you, Glenn.
