Glenn Coleman
Executive Vice President, Chief Financial Officer at DENTSPLY SIRONA
Thanks, Simon. Good morning, and thank you all for joining us. Today, I'll cover several topics, including our fourth quarter and full year 2023 results, as well as our outlook for 2024. Let's begin on slide five. Our fourth quarter revenue was $1.01 billion, representing reported sales growth of 2.9% and organic sales growth of 1.9%. Foreign currency positively impacted sales by approximately $10 million or 100 basis points compared to the prior year quarter. On a constant currency basis, the key highlights in the quarter included strong sales performance in China, which grew over 35%, double-digit growth in both Wellspect and Implants and Prosthetics and high single-digit growth in our global aligners business. Despite higher sales, EBITDA margins declined 40 basis points in the quarter, mainly due to year-over-year decline in gross margins, which contracted 100 basis points. This was largely driven by unfavorable country mix due to lower-margin implant sales in China and unfavorable product mix within our endo and CAD/CAM portfolios. Adjusted EPS in the quarter was $0.44, down 4% from the prior year, largely due to lower gross margins and a higher tax rate. In the fourth quarter, we generated $160 million of operating cash flow, up 13% year-over-year, driven by improved inventory management and the timing of accounts payable compared to the prior year. Free cash flow conversion was 128% compared to 110% in the prior year. In the fourth quarter, we repurchased $150 million of stock at an average price of $30.73 and paid $30 million in dividends. For the full year, we returned $416 million to shareholders.
Let's now turn to fourth quarter segment performance on slide six. Starting with the Essential Dental Solutions segment, which includes endo, resto and preventive products, Organic sales grew 3.4%, driven by growth in all three regions and in each product category. EDS benefited from stable patient traffic and price increases implemented earlier in the year. Shifting to the Orthodontic and Implant Solutions segment, organic sales grew 10.6%. Aligners grew high single digits. Specifically, SureSmile grew 13% and continues to benefit from market share gains, new product offerings and differentiated outcomes. Additionally, we believe the recent launch of our SureSmile simulator within DS Core will benefit future sales. Our direct-to-consumer aligner brand Byte grew 6% despite a constrained financing environment. With the recent uptick in new customer interest, we are ramping our investment in treatment planning, clinical support and sales, which supports our anticipated greater than 20% growth in Byte this year. We also expect SureSmile to grow double digits in 2024. Moving to Implants and Prosthetics. Double-digit growth was a clear bright spot in the quarter driven by VBP and market share gains in China and higher demand in Europe. Globally, premium and value implants saw similar growth rates. Our US implants business was down slightly in the quarter, but showed less of a decline than previous quarters, and we anticipate a return to growth in 2024. Wrapping up our dental performance, CTS, our Connected Technology Solutions segment saw organic sales declined 8.3% versus the prior year quarter. Our global CAD/CAM business grew low single digits, driven by increased demand in the US, while the Equipment & Instruments business declined double digits in the quarter. Moving to Wellspect Healthcare. Organic sales grew 16.9%, driven by growth in Europe and the US.
As a reminder, Wellspect had an easier comp, as the prior year quarter was impacted by a onetime pricing matter in Italy. In addition, new product launches contributed to better-than-expected year-over-year growth. Now, let's turn to slide seven to discuss fourth quarter financial performance by region. US sales declined 1.2% due to lower sales of equipment instruments and implants, partially offset by strong growth in aligners and CAD/CAM equipment. US CAD/CAM distributor inventory levels decreased sequentially in the quarter by approximately $4 million and ended the year essentially flat compared to the end of 2022. Relative to historical averages, distributor inventory levels remain low. Turning to Europe. The region returned to growth in the quarter with contributions from Wellspect, EDS and OIS. SureSmile grew over 25% with notable growth in Spain, France and Germany. We also saw an increase in implants demand driven by growth in MIS and higher conversions from our legacy product, XiVE, to our new DS OmniTaper implant. Our CTS segment continued to see lower volumes due to recessionary impacts, particularly in Germany, which is the largest market in the region. Excluding Germany, Europe organic sales grew 4.1% compared to the prior year. Rest of World organic sales grew 5.4% in the quarter, led by China, which delivered significant growth in implants. In 2023, we saw a more than 40% increase in our China implants customer base. The public and private sector both continue to experience significant market growth. Sales in Japan declined during the quarter, as the prior year quarter benefited from government rebate programs on certain equipment. Wrapping up Q4 regional performance. Latin America grew high single digits in the quarter, led by solid demand and sales execution in Brazil and Mexico.
We saw an improvement in Interoil scanner volume, driven by the launch of Primescan Connect and sales of refurbished Omnicam units in the region. In the first half 2024, we plan to launch SureSmile, DS Core and Primeprint in Brazil and other countries within the region. Now, let's turn to slide eight to briefly cover our full year 2023 performance. Sales for the full year were $3.97 billion, representing reported sales growth of 1.1% and organic sales growth of 2.2%. Foreign currency translation negatively impacted sales by 110 basis points due to a stronger dollar versus most major currencies. Key highlights for the year included double-digit growth in aligners and high single-digit growth in China due primarily to significantly higher volume in implants, which more than offset the pricing declines associated with VBP. The largest challenge we saw in 2023 was lower volumes in equipment and instruments, which we attribute to recessionary concerns and higher interest rates in the US, Germany and other developed markets as well as competitive pressure and we see this trend continuing into 2024. EBITDA margins contracted 210 basis points to 17.4% due to cost inflation and higher investments in the commercial organization, clinical education and infrastructure, partially offset by restructuring benefits. EBITDA margins were in line with our guidance and adjusted EPS of $1.83 was at the midpoint of our range. Operating cash flow was $377 million, down 27% year-over-year, driven by higher investments, restructuring cash outlays and unfavorable timing of accounts receivable and accounts payable.
Free cash flow conversion was 58% compared to 81% in 2022. As we mentioned during our recent Investor Day in November, our long-term goal is to achieve 100% free cash flow conversion on a consistent basis once we move past the cash outlays associated with our transformation initiatives. The company continues to maintain a strong balance sheet and finished the year with $334 million of cash and cash equivalents on hand, with a net debt-to-EBITDA ratio of approximately 2.6 times, which is slightly above our long-term targeted rate of 2.5 times due to the fourth quarter $150 million share buyback. Today, we also announced a 14% increase to our dividend. This marks our fourth consecutive year of double-digit increases to the dividend and demonstrates our confidence in our long-term plan. With that, let's move to slide nine to discuss our expectations for 2024. For 2024, we expect organic sales to be flat to up 1.5%, which represents a net sales range of $3.96 billion to $4.02 billion. We expect FX to be a slight headwind to reported sales based on current rates and anticipate stronger organic sales growth in the second half of the year as we remain cautious on the macroeconomic backdrop for the next several quarters, particularly for equipment. We expect our EBITDA margin to be greater than 18% in 2024, an expansion of approximately 100 basis points year-over-year. We also expect margin improvement as we progress through the year based on the timing of investments and restructuring savings. We project an increase in our full-year tax rate due to geographic income mix and expect the Q1 tax rate to be higher than the full year as we finalize our 2024 tax planning initiatives.
We expect adjusted earnings per share to be in the range of $2 to $2.10. For Q1, we expect organic sales to be roughly flat to the prior year, with slightly lower reported sales due to an anticipated FX headwind of approximately $10 million. On a sequential basis, gross margin is projected to improve in Q1. With this, we expect EPS will be up mid-single digits year-over-year. In Q1, we expect to see growth in OIS and Wellspect Healthcare, offset by declines in EDS due to a tougher comp and CTS based on current trends. Let's turn to slide 10 to discuss the puts and takes in our 2024 adjusted EPS outlook. Organic growth at the midpoint is expected to contribute $0.04 to earnings. Our projected cost savings from the restructuring plan should reach the run rate of $200 million in 2024. Net of investments, we expect this will contribute approximately $0.13 of EPS. The investments for 2024 include ERP expenses, Byte and SureSmile expansion. We expect net investment hedges will be a $0.07 tailwind to EPS, consistent with our previous comments at our November Investor Day. We are forecasting that other items, namely cost inflation, tax and share count will net to a $0.02 headwind to EPS. These drivers combined to adjusted EPS outlook of $2.05 at the midpoint of the range, up double-digits versus the prior year.
With that, I will now turn the call back over to Simon.
