DENTSPLY SIRONA Q1 2024 Earnings Results & Report

DENTSPLY SIRONA EPS Results

• Actual EPS: $0.42
• Consensus EPS: $0.42
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.39
• EPS Beat Rate: 3 of last 8 quarters

DENTSPLY SIRONA Revenue Results

• Actual Revenue: $953 million
• Expected Revenue: $969.45 million
• Beat/Miss: Missed by -$16.45 million
• YoY Revenue Growth: -2.60%

DENTSPLY SIRONA (NASDAQ:XRAY) is a global manufacturer of professional dental products and technologies. The company serves dentists, dental specialists, dental laboratories and other oral health professionals with solutions used in preventive, restorative, prosthetic, endodontic and implant dentistry.

Its portfolio includes dental equipment, imaging and treatment systems, CAD/CAM technology, consumable dental materials, orthodontic products, endodontic instruments and solutions, dental implants, prosthetic components and laboratory products. The company also provides digital workflows and software designed to support diagnosis, treatment planning, restoration and practice efficiency.

DENTSPLY SIRONA was formed in 2016 through the merger of DENTSPLY International and Sirona Dental Systems. Headquartered in Charlotte, North Carolina, the company sells its products through direct and distribution channels across numerous international markets, serving customers in North America, Europe, Asia and other regions. Simon Campion serves as president and chief executive officer.

DENTSPLY SIRONA Q1 2024 Earnings Call Transcript

Key Takeaways

• In Q1, organic sales declined 1.9% driven by imaging technology and essential dental solutions headwinds, partly offset by growth in orthodontic, implant solutions and Wellspect; sales were flat excluding Germany.
• Adjusted EPS was $0.42, up nearly 8% year-over-year and in line with expectations, while full-year guidance of $2.00–$2.10 EPS and flat to 1.5% organic sales was maintained but is trending toward the low end.
• The connected technology segment saw a 5.7% organic decline, led by continued macro pressures and competitive headwinds in imaging, prompting the relaunch of Orthophos SL in Europe at lower price points.
• Orthodontic and implant solutions performed well with aligners up 14%, SureSmile up 9%, direct-to-consumer Bite growth of 18%, and low single-digit implant growth alongside expansions in the U.S., Japan and Brazil.
• The company announced up to $150 million in share repurchases for Q2 and plans tighter cost controls to offset foreign exchange headwinds and sustain profitability targets.

Presentation

[Operator]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Investor Relations, Andrea Daley. Please proceed.

[Andrea Daley, VP of Investor Relations at Dentsply Sirona]

Thank you, operator, and good morning, everyone. Welcome to the Dentsply Sirona first quarter 2024 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, Glenn Coleman, Chief Financial Officer, and Andreas Frank, Chief Business Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investor 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 may 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.

[Andrea Daley, VP of Investor Relations at Dentsply Sirona]

Our most recently filed Form 10-K and any updating information in subsequent SEC filings list some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business's financial performance, enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to prior year quarter, unless otherwise noted. A webcast replay of today's call will be available on the Investors section of the company's website following the call. With that, I will now turn the call over to Simon.

[Simon Campion, CEO at Dentsply Sirona]

Thank you, Andrea, and thank you all for being here with us this morning for our Q1 2024 earnings call. Today, I'll begin, as usual, by providing a summary of our recent performance. Glenn will cover Q1 financial results and the full year outlook, and I will finish by providing an update on our strategic operating plan. Now, starting on slide three. In Q1, organic sales declined by 1.9%, driven by lower sales in Connected Technology Solutions and Essential Dental Solutions, partly offset by growth in Orthodontic and Implant Solutions and Wellspect HealthCare. Within CTS, imaging equipment experienced larger-than-expected headwinds, driven by continued unfavorable macroeconomic conditions and competitive pressure. Regionally, the macroeconomic environment in Germany remained challenging. For the quarter, organic sales were roughly flat, excluding Germany. In April, we conducted our quarterly global customer survey, covering 12 countries with nearly 1,500 respondents.

[Simon Campion, CEO at Dentsply Sirona]

Survey results indicate that in the U.S., patient volumes are stable and dentist sentiment is relatively unchanged. In Canada, a new government health policy designed to help lower and middle-income families is rolling out in the first half of 2024, which we believe has resulted in patients delaying treatments until this benefit is in effect. In Germany, we were pleased to see procedure utilization and dentist outlook improve slightly. All other European markets included in the survey remain relatively stable. In Asia Pacific, dentists in Australia continued to exhibit more negative sentiment. We saw mixed feedback in Japan. While there was a decline in patient volumes, dentists were positive around the imminent change in reimbursement for intraoral scans. Finally, in China, patient volumes are stable but remain low compared to other markets.

[Simon Campion, CEO at Dentsply Sirona]

As we execute on our strategic objectives, it remains crucial that we consistently seek input from customers to inform our decisions so that we can validate that we are on the right path. We appreciate so many taking the time, quarter after quarter, to provide us with this substantial and valuable input. Our first quarter adjusted EPS was $0.42, which was an increase of nearly 8% and in line with our expectations despite softer sales. For the full year, we are maintaining our outlook range for organic sales and adjusted EPS, but trending towards the low end of both ranges. We're taking a cautious stance here with the macro uncertainties that continue to impact parts of our business, most notably imaging. We're also adjusting net sales for an additional FX headwind.

[Simon Campion, CEO at Dentsply Sirona]

Though we believe these headwinds are transient, we are actively taking additional measures, such as tightening cost controls, to better position us to deliver on our profitability and EPS targets for the year. We remain confident in our long-term trajectory. We have a comprehensive portfolio and are making progress on our strategic objectives. In fact, today, we announced that we plan to execute up to $150 million in share repurchases in the second quarter. Moving to slide four, I would like to share some select business highlights. We are advancing innovation and progressing initiatives across our business. DS Core remains a key focus of our innovation. We are delivering enhancements and seeing strong uptick in adoption rates from new users and increased utilization rates from existing users. We also piloted DS Core Enterprise with a large DSO in the U.S.

[Simon Campion, CEO at Dentsply Sirona]

Given the shared experience to date, we are jointly exploring increasing the scope and size of this pilot. I've already shared the dynamics impacting our imaging business. To better position our portfolio, we expanded our offerings through the relaunch of Orthophos SL, a 2D and 3D imaging line in Europe. Bringing this product line back to market broadens our imaging portfolio and provides flexibility to our customers with more options at different price points. Therefore, we believe bringing this solution back to our customers will improve performance in imaging. Additionally, in CTS, we recently launched Axano Pure, a new treatment center with advanced features at an improved price point, and Midwest Energo, a portfolio of electric handpieces. These innovations bring new efficiencies and enhanced capabilities to our customers, a continued key demand from customers captured in our quarterly survey.

[Simon Campion, CEO at Dentsply Sirona]

In EDS, we continue to roll out X-Smart Pro+ in additional markets, which included Japan in Q1. X-Smart Pro+ is an endomotor solution that enables dentists to focus more on the procedure rather than the tools. Our data shows that the motor optimizes performance of Dentsply Sirona's endodontic filing systems and has differentiated attributes that sets it apart from its competition, and we are pleased with the uptake of this technology thus far in Europe and in Japan. We also remain committed to advancing sustainability. We are a mission-driven organization focused on improving health and access to care, and we are proud to partner with organizations such as the International Association for Disability and Oral Health, who promote equitable access to high-quality oral health care for patients with disabilities.

[Simon Campion, CEO at Dentsply Sirona]

This partnership builds upon the work we have already done in this area with the University of Pennsylvania to provide equipment for their care center for persons with disabilities, which serves several thousand patients each year. Lastly, our Wellspect HealthCare business achieved a new milestone with the validation of its emission reduction target by the Science Based Targets initiative. We believe Wellspect HealthCare has long-standing leadership and expertise in sustainability that can benefit our entire company. With that, I will hand the call over to Glenn for a more detailed financial update.

[Glenn Coleman, CFO at Dentsply Sirona]

Thanks, Simon. Good morning, and thank you all for joining us. Today, I'll provide more detail on our first quarter results and an update on our full year 2024 outlook. Let's begin on slide five. Our first quarter revenue was $953 million, representing a decline of 2.6% over the prior year quarter. On an organic basis, sales declined 1.9%, as foreign currency negatively impacted sales by approximately $7 million or 70 basis points. On a constant currency basis, sales highlights in the quarter included approximately 53% growth in China, 14% growth in our global aligners business, 9% growth in CAD/CAM, and 5% growth in Wellspect HealthCare. These improvements were offset by declines in imaging equipment, where we continued to experience the effects of market conditions and increased competition.

[Glenn Coleman, CFO at Dentsply Sirona]

In addition, our Essential Dental Solutions segment had year-over-year declines, largely due to a tougher comp. Despite lower sales, EBITDA margins expanded 30 basis points due to restructuring savings and net investment hedges. Gross margin was flat year-over-year, but improved 140 basis points on a sequential basis. Adjusted EPS in the quarter was $0.42, up 8% from prior year, largely due to higher EBITDA margins, a lower share count, and a lower effective tax rate. In the first quarter, we generated $25 million of operating cash flow compared to an outflow of $21 million in the prior year quarter. The year-over-year improvement is attributed to improved cash collections and a lower build of inventory. We continue to maintain a strong balance sheet with cash and cash equivalents of $291 million on March 31st.

[Glenn Coleman, CFO at Dentsply Sirona]

Our Q1 leverage ratio was 2.6x, slightly higher than our long-term targeted rate of 2.5x. We expect leverage to increase marginally in the second quarter, with a plan to end the year at approximately 2.5x. These projected leverage ratios reflect the share repurchases that Simon noted earlier. Let's now turn to first quarter segment performance on slide six. Starting with the Essential Dental Solutions segment, which includes endo, resto, and preventive products, organic sales declined 5.5% due to a tough year-over-year comp. As a reminder, EDS organic sales grew 11.5% in the first quarter of 2023, which benefited from a strong rebound in patient traffic and pre-buying ahead of price increases.

[Glenn Coleman, CFO at Dentsply Sirona]

Shifting to the Orthodontic and Implant Solutions segment, organic sales grew 5.6%, with strong growth from aligners up 14%. SureSmile, our professional aligner brand, grew 9% and continues to benefit from market share gains, new product offerings, and differentiated outcomes. We're expanding further in certain international markets, including Japan and Brazil, which we believe will lead to continued momentum in SureSmile. Byte, our direct-to-consumer aligner brand, grew 18% over the prior year quarter. Byte growth accelerated through the period as the increase in customer interest and impression kit orders that we discussed on our last earnings call began to convert to aligner cases. Implants and prosthetics grew low single digits in the quarter, highlighted by growth in China due to VBP and partially offset by declines in the U.S. and Europe.

[Glenn Coleman, CFO at Dentsply Sirona]

Our value implant segment delivered double-digit growth, and on the premium side, the new EV family of implants and prosthetic solutions grew double digits, outpacing the declines we have seen in legacy brands. Wrapping up our dental performance, CTS, our Connected Technology Solutions segment, saw organic sales decline 5.7% versus the prior year quarter and was below our expectations, largely due to double-digit declines in imaging equipment. Our global CAD/CAM business was a bright spot and grew high single digits, driven by increased demand in the U.S. Moving to Wellspect HealthCare, organic sales grew about 5%. The sales growth across all regions as we continue to benefit from new products launched in the last 12 months. We expect Wellspect to grow faster in the second quarter, with high single-digit growth over the prior year.

[Glenn Coleman, CFO at Dentsply Sirona]

Now let's turn to slide seven to discuss first quarter financial performance by region. U.S. organic sales grew 1.4% due to strong growth in aligners and CAD/CAM, partially offset by lower sales of imaging equipment, as well as a tougher comp in EDS. U.S. CAD/CAM had a strong quarter, with double-digit growth in intraoral scanners, mills, and 3D printers at both the wholesale and retail level. Distributor inventory levels increased sequentially by approximately $9 million, consistent with normal seasonality. We expect U.S. CAD/CAM distributor inventory levels to fluctuate quarter to quarter and be roughly flat by the end of the year compared to current levels. Turning to Europe, organic sales declined 5.8%, primarily due to lower Essential Dental Solutions and equipment and instruments volume across the region.

[Glenn Coleman, CFO at Dentsply Sirona]

This decline was partially offset by SureSmile, which grew over 20% in the region, highlighted by higher demand in Spain, France, and Italy. Germany, our largest market in the region, was down double digits versus the prior year quarter. We continue to see prolonged recessionary trends in Germany, largely affecting our equipment business. Excluding Germany, Europe organic sales declined 1.9%. Rest of World organic sales were approximately flat in the quarter, as significant implants growth in China was offset by softer demand for equipment in Japan and Canada. With that, let's move to slide eight to discuss our updated outlook for 2024. We're lowering our reported sales range by $50 million to reflect the additional FX headwinds due to the recent strengthening of the dollar versus the euro and other major currencies.

[Glenn Coleman, CFO at Dentsply Sirona]

At current FX rates, we now expect reported sales to be within the range of $3.91 billion-$3.97 billion. We are maintaining our outlook range for organic sales, which is for flat to 1.5% growth, but trending to the low end of that range based on our first quarter results and the current macro environment, largely impacting our imaging business. Our current outlook assumes stronger organic sales growth in the second half of the year, primarily driven by double-digit growth in aligners, strong CAD/CAM demand, and improvements in EDS and U.S. implants. Moving to profitability, our outlook for adjusted EBITDA margin of greater than 18% remains unchanged from our prior guidance.

[Glenn Coleman, CFO at Dentsply Sirona]

Adjusted EPS is trending towards the low end of the outlook range of $2-$2.10 due to the lower sales expectations. Consistent with the trends we saw in the first quarter, we expect that second quarter organic sales will decline low single digits versus the prior year period. We also expect about a $20 million headwind from foreign currency. Sequentially, reported sales are expected to increase in the second quarter based on normal seasonality. We anticipate second quarter adjusted EPS will be down slightly year-over-year, primarily due to a higher tax rate, partially offset by a slight improvement in adjusted EBITDA margin. With that, I'll now turn the call back over to Simon.

[Simon Campion, CEO at Dentsply Sirona]

Thank you, Glenn. Moving on to our strategic update on slide nine. On our last earnings call, I shared the progress we plan to make in 2024 on our foundational initiatives, including supply chain transformation and SKU optimization. We expect these programs to contribute meaningfully to enhancing and sustaining profitability over the long term. We are actively executing each initiative, with financial benefits expected to begin in the second half of 2024. We expect that accelerating enterprise digitalization will enable both our customers and our organization to benefit from digitalizing and harmonizing workflows. I already shared the uptick in DS Core adoption rates, which includes both dental practices and labs, and which we believe reflects the value it can bring the new products in our pipeline, with expanded connectivity, will further enhance the value of embedding DS Core in digital workflows.

[Simon Campion, CEO at Dentsply Sirona]

We've heard firsthand that customers appreciate the workflow efficiencies that we envisioned with this unique, differentiated, and unifying platform. We expect our ERP modernization to also play a part in accelerating enterprise digitalization. It is more than a system rollout. It is a true business transformation. Through our phased approach, we plan to transition each country to a single commercial entity, enabling consistent business processes and implementing a range of enhancements to simplify how we conduct business with our customers, improve our operations, and accelerate our innovation. We are currently piloting this rollout in several locations, with phased deployments expected to start mid-year. Lastly, on enterprise digitalization, we are also advancing our data and AI strategy. We are leveraging the expertise of a leading cloud service provider that supports our digital platforms.

[Simon Campion, CEO at Dentsply Sirona]

We expect this important work will improve our customer experience and increase efficiency as we implement our new ERP and bring more functionality to DS Core. Next, let's cover our progress on our objective to win in high growth categories such as ortho, implants, and continence care. In ortho, we have invested in SureSmile reps in Japan and frontline support for Byte. We are already seeing the growth in Byte, with sales increasing nearly 18% in Q1, and we expect more than 20% growth for the full year. Byte+, our hybrid solution with in-office scanning and connectivity, also continues to expand and has now moved from pilot phase into commercial launch. Feedback has been positive, and the business is exceeding its KPIs on this initiative as we continue to ramp the model. SureSmile remains on track to launch in Brazil in the second quarter.

[Simon Campion, CEO at Dentsply Sirona]

We believe this is an important market to further drive geographic expansion in this business. In the U.S., we have invested in our implants business, expanding the team and enabling them with tools, trainings, and growth-oriented compensation plans. Implants in China has been a bright spot for our business, with the first year of VBP exceeding our expectations. While we expect the program to continue to result in increased volume, we anticipate growth rates in China will moderate for the remainder of the year, given the tougher comps. We are also investing in capacity expansion for our Wellspect HealthCare business to support the growth and vision from new product launches. The business delivered mid-single-digit growth in Q1, and with its innovation pipeline, we expect the momentum to continue through the remainder of the year and beyond.

[Simon Campion, CEO at Dentsply Sirona]

Lastly, supporting our ability to drive a high-performance culture, we started this year off with well-defined strategic and operational goals. We set clear 2024 KPIs across the company to monitor progress and drive performance. We believe this rigor will enable us to make better decisions as we navigate the dynamic external environment. Moving to our final slide, I would like to reinforce a few key points. First, I want to reiterate that fulfilling our commitments is essential. In Q1, we delivered nearly 8% adjusted EPS growth despite softer sales. While we see this as a positive, we know it is only part of what we need to deliver on, and as such, we remain focused on achieving all of our commitments.

[Simon Campion, CEO at Dentsply Sirona]

Second, we have and will continue to take proactive steps to improve our competitive position, like our global investments in our aligners business and the reintroduction of the Orthophos SL imaging line. In addition, we're continuing to put additional measures in place to improve cost and efficiency. To that point, our strategic initiatives remain on track. We have a clear strategy, detailed plans, and well-defined KPIs that we watch closely and refine as needed. As we execute these initiatives, we believe our business will be better positioned for profitable growth, as laid out in the schedule shared at Investor Day in a more normal macro environment. And with that, let's now open it up for questions. Operator?

[Operator]

Thank you. And I will open the lines, and as a reminder, press star one one to get in the queue. To remove your question, simply press star one one again, and please keep your questions to one and one follow-up. Stand by while we compile the Q&A roster. And our first question comes from the line of David Saxon with Needham & Company. Please proceed.

[David Saxon, Principal at Needham & Company]

Great. Good morning, Simon and Glenn. Thanks for taking my questions. Maybe to start out on guidance, last quarter, you called out growth expectations for each of the business. So, you know, one quarter in, would love to get an update on kinda how you're thinking about growth for each of the businesses. I'd assume CTS kinda comes down, but would love your thoughts on that.

[Glenn Coleman, CFO at Dentsply Sirona]

David, it's Glenn. I'll take that one. So, just in terms of sequencing for the year, obviously with our Q2 guidance color that we provided, you know, we expect to be down organically about 2% in the first half of the year, which would imply we expect to be up close to 3% organically in the back half of the year to get us flat on a full year basis. If we look at it by our different business segments-

[Glenn Coleman, CFO at Dentsply Sirona]

I would expect Essential Dental Solutions to get back to a flattish number on a full year basis. That's gonna be down, obviously, in the first half of the year, but we expect the back half of the year to grow low single digits, pretty much in line with what patient traffic should be. Ortho, we're expecting to see really good performance there. Certainly double-digit growth. Coming off a quarter of 14%, I expect it to grow faster in the second quarter, and then the back half of the year, you know, exceeding 20% for our total ortho business is what we're projecting right now, which would put us, you know, in, in a really good shape relative to that part of our business.

[Glenn Coleman, CFO at Dentsply Sirona]

Have really good momentum, and if you look at what's happening there, obviously, we're seeing an acceleration of Byte, combination of the Byte+ program that's now fully commercially launched. We're seeing really good impression kit growth, which is a lead indicator for future sales, and so we're capitalizing on some of the competitive dynamics there from a Byte perspective. And SureSmile, you know, we are making some significant commercial investments both in Brazil and Japan. We talked about those in our prepared remarks. And so ortho, we feel very good about our path forward in terms of putting up some very solid growth. For implants, I would say low single digit growth, similar to what we posted here in the first quarter, so that should be pretty consistent.

[Glenn Coleman, CFO at Dentsply Sirona]

The dynamic there, though, is I think we'll see a slowdown in China with tougher year-over-year comps, offset by better performance in both our U.S. and European implants business. But overall, that should be pretty consistent growth, I would say, throughout the year. CTS, obviously, we were disappointed in the quarter. We were down close to 6% organically. I would expect another challenging quarter here in Q2. We do expect, though, to see better performance in the back half of the year. It's still expected to be down year-over-year in the back half of the year, but improvements from the first half. We were encouraged by, obviously, the CAD/CAM growth that we saw here. That should continue as we move forward. Imaging, while disappointing, we're obviously taking some actions internally to address the competitive dynamics, so we're relaunching Orthophos SL in Europe.

[Glenn Coleman, CFO at Dentsply Sirona]

Simon commented on that in his prepared remarks. That's great because it's a broader product offering at lower price points for our customers. And even in the first couple weeks of Q2, we're seeing some good traction there, so I feel good about that plan. We're looking at promotional activities across different countries to see where we should be providing more promotional activities for our imaging equipment, implementing additional financing programs to address the higher interest rate environment, and then doing some additional sales training. So I think we're doing all the right things on imaging right now. It's gonna be a tough environment for a full year basis, but that should put us overall in better shape in the second half of the year, although still, CTS is gonna be most likely down mid-single digits on a full year basis.

[Glenn Coleman, CFO at Dentsply Sirona]

Then obviously, Wellspect, good momentum here in Q1. We expect faster growth in Q2, and that should be growing, you know, kind of mid to high single digits on a full year basis. So that gives you a little bit of color across our businesses. Hopefully, that was helpful.

[David Saxon, Principal at Needham & Company]

Yeah, super helpful, Glenn. Thanks, thanks for all that color. Maybe I'll ask my follow-up on the North America implants business. Maybe just give an update on kind of how that team is doing. You know, you have a competitor who's dealing with their own issues, so I wonder if, you know, that maybe accelerates your path to growth. I think original expectations for the back half, and then maybe even to market growth, I think that was in 2026. And then, you know, would love to hear your thoughts on, you know, what market growth actually is currently. Thanks so much.

[Simon Campion, CEO at Dentsply Sirona]

Good morning, David. It's Simon. So listen, as we've said before, would you expect to be growing, or posting some growth in the back half of the of 2024? And then, as you said, the plan is to get to market growth by 2026. You know, as we've said, we have, we've created a new team. We've given them the tools and the training. We did see some positive signs, I would say, in the quarter. We're growing in the DSO business, in implants, and you know, as you know, that part of the dental industry is not going away and is, in fact, accelerating.

[Simon Campion, CEO at Dentsply Sirona]

The decline of large accounts has, for the most part, stopped. So we think we've stemmed the bleeding to a large extent. We have heavily invested in clinical education, which was one of the areas that the company stepped away from in the past, and we've seen a significant increase in our presence at different educational fora throughout Q1. As we've communicated before, in Q2, we'll have the World Implant Summit in Miami, which is another reflection of our commitment to the implant family. And we're expecting almost 500 attendees there, of which we expect in excess of 50% to be from North America.

[Simon Campion, CEO at Dentsply Sirona]

So, we feel we're making all the right steps in implants. It has for sure taken longer, I think, than we expected, given our history in different med tech industries. But as we speak to customers, they're saying you're making the right moves. It's just gonna take a while to turn the corner here, given the complexity of the implant market and the complex referral network that's required. And your question on market growth, I would think market growth in implants is mid-single digits in general, notwithstanding the current macro climate, where there's probably pressure on implants given its elective nature.

[David Saxon, Principal at Needham & Company]

Okay, great. Thanks so much.

[Operator]

Thank you. One moment for our next question, please. It comes from the line of Jeff Johnson with Baird. Please proceed.

[Jeff Johnson, Managing Director and Senior Research Analyst at Baird]

Thank you. Good morning, guys. Simon, I thought maybe step back here just a second. You talk about bringing Orthophos SL back to the European market. You've got a lower priced treatment center that I think you're launching as well. Obviously, Primescan Connect, a couple year and a half, two years ago, you launched at that lower price point. You don't rush these decisions out the door if it's just cyclical, if it's just a short-term interest rate shock kind of thing, things like that. So what does this decision to move down the pricing scale tell us maybe about end markets, about competition, you know, where your competitive positioning that historically with the Sirona brands had been at the premium end, where it's going right now?

[Jeff Johnson, Managing Director and Senior Research Analyst at Baird]

Would just love kind of your lay of the land there and kind of what's driving your thought process on some of this move to the lower price points. Thanks.

[Simon Campion, CEO at Dentsply Sirona]

You know, in relation to Orthophos SL, Jeff, you know, I think aside from any macro issues, I think that was the discontinuation of that product line a number of years ago was a strategic error, given the mix of dentists' willingness to buy value or buy premium. And so we had a significant gap we felt in our imaging line that can be addressed by the reintroduction of Orthophos SL. It fills out our line and now offers us a set of price positions for different types of dentists and DSOs in Europe in particular. So it's not a rushed decision given the macro situation.

[Simon Campion, CEO at Dentsply Sirona]

It is a gap that we identified, and we're now setting about filling it. And I think that's consistent with other parts of our business too. We have we always had lower end treatment centers, and we have value-based implants as well. So, serving the needs of the variety of customers that we provide technology to with is a strategic objective of ours.

[Jeff Johnson, Managing Director and Senior Research Analyst at Baird]

That's fair. I guess maybe to think about it in a more consolidated way, you know, and maybe, Glenn, you could help here, is do you think your blended, you know, revenue per system sale, if we're talking at treatment centers, at imaging, within, you know, CAD/CAM, anything like that, does that need to keep moving down over the next few years? Is there kind of a secular downward pressure on kind of those blended ASPs just as mix continues to move to those value? Or do you think in a better economy, we'll come back to premium product and premium prices, reaccelerating a little bit, and maybe that blended ASP per system or whatever can stabilize? Thanks.

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, listen, when we talk to our customers, their number one concern is cost and cost increases in their practices. So we wanna make sure that we have alternatives for our customers, whether it be premium price products, where they want a premium price product or, you know, trade down value brands. I think when we look across our portfolio, you know, we're well positioned in each of the different categories. You know, implants, we have a premium product. We have a value implant product that's very good. We talk about CTS and Primescan Connect. Even in EDS, we've got trade down and what we call fighter brands, such as Zhermack as an example, and even in Ortho, right? Byte is a lower cost alternative for ortho treatment. So I think it's important you have alternatives for customers.

[Glenn Coleman, CFO at Dentsply Sirona]

How this plays out over the long term, we'll have to see. But we do know that right now, you know, the number one issue our customers are telling us that they're seeing is an increase in cost in their practices. So we want to be there for them with a comprehensive portfolio and supporting whatever it is that they need, whether it be premium or value products.

[Jeff Johnson, Managing Director and Senior Research Analyst at Baird]

Yes, fair enough. Thanks.

[Operator]

Thank you. One moment for our next question, please. It comes from the line of Kevin Caliendo with UBS. Please proceed.

[Dylan Finley, Equity Research Associate at UBS]

Thank you very much. This is Dylan Finley on for Kevin. Question: Simon, in the prepared remarks, talked about the tightening of cost controls to enhance profitability. Now, is that incremental to all the efficiency reductions you've set forward on the path to the 2026 EPS target? And on the from a timing perspective, would these efforts have an impact on the bottom line in 2024, or is this more of a 2025 benefit? Thanks.

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, thanks for your question. This is Glenn. So I think, on the whole, if we see more revenue softness and pressure on our top line, we're gonna continue to take actions across the organization in terms of looking at how to be more efficient in different areas of the organization and looking at areas to bring our costs down where we can. So these would be incremental actions if we see additional top-line revenue pressure. Obviously, those would be 2024 actions.

[Dylan Finley, Equity Research Associate at UBS]

Great. Thank you.

[Operator]

Thank you. One moment for our next question, please. It's from the line of Elizabeth Anderson with Evercore ISI. Please proceed.

[Elizabeth Anderson, Senior Managing Director at Evercore ISI]

Hi, guys. Thanks so much for the question. I was wondering if you could talk a little bit more about the gross margin line. It came in a bit stronger than I had been modeling. I just want to understand, is that sort of just a reflection of mix? Is that a reflection of some of the restructuring efforts that you guys have already changed, I guess, with a view to kind of understand how what the sustainability of that looks like across the rest of the year? Thank you.

[Glenn Coleman, CFO at Dentsply Sirona]

You know, I think gross margins were a little bit better than we were expecting. We were expecting, though, to see an improvement from where we landed in Q4. Q4 was artificially low, and we talked about the reasons back in Q4 around that. So, you know, on a year-over-year basis, our margins are essentially flat. I would expect going forward, what we just produced here in Q1 results at 56.6% or so. It's gonna be pretty consistent on a full year basis. I wouldn't expect much of a margin expansion or contraction story. It will probably go down slightly in Q2, and then as we get more volumes in the back half of the year, go back up again. But we're probably gonna be, Elizabeth, around this range, I would say, for the remainder of the year. Overall, pricing is stable.

[Glenn Coleman, CFO at Dentsply Sirona]

We're not getting price increases, but we're not seeing significant decreases anywhere in the portfolio. Obviously, in certain areas, we're getting some increase, other areas we're going down, but overall, it's kind of flattish on a price perspective. The key for us is driving more volume. As we get more volume, we'll continue to see, hopefully, better gross margin performance. But right now, I would just say, you know, expect our gross margins to be pretty consistent with what we put up here in Q1.

[Elizabeth Anderson, Senior Managing Director at Evercore ISI]

Got it. And just in terms of across the quarter that you saw in the results across the months of the first quarter, how would you say, like, that was sort of like a stable trajectory across the quarter? Are you thinking that certain parts are getting incrementally better or worse? I'm just trying to make sure that we understand some of the jump-off points as we think about, particularly 2Q, but then obviously in the context of the broader guidance that you gave. Thanks.

[Glenn Coleman, CFO at Dentsply Sirona]

I'm not sure I understood the question. Could you just repeat that, Elizabeth?

[Elizabeth Anderson, Senior Managing Director at Evercore ISI]

Oh, so just in terms of, like, you I think you talked about, like, stable U.S., visit volume and things like that. So I'm just kind of trying to understand, like, across the first quarter, like, what sort of deteriorated as we moved across the first quarter, maybe what got stronger, just so we kind of have a good sense of, like, the cadence as we're thinking about, like, the 2Q growth rates, and then, in the context of what you said for the full year. Thanks.

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, no, listen, we saw a strong momentum in ortho throughout the quarter. I'm expecting that to continue, as I mentioned earlier, going into Q2, so we should see faster growth in ortho even versus the 14% that we put up in Q1. I think the area of disappointment, and even in March was disappointing, was our CTS business and imaging. And so, we are expecting that challenging environment to continue going into Q2. So it, you know, model conservative numbers, probably similar declines or even more declines in CTS in Q2. So that's kind of the, I would say, the dynamic relative to how the Q1 numbers played out, that CTS was disappointing, and so some good momentum in ortho, which is gonna continue going into Q2.

[Glenn Coleman, CFO at Dentsply Sirona]

But overall, again, we're expecting Q2 organic growth to be pretty similar to Q1, down about, you know, 2%.

[Elizabeth Anderson, Senior Managing Director at Evercore ISI]

Okay. Thank you.

[Operator]

Thank you. One moment for our next question, please. It comes from the line of Jason Bednar with Piper Sandler. Please proceed.

[Jason Bednar, Senior Research Analyst at Piper Sandler]

Hey, good morning. Thanks for taking the questions. Wanted to zoom in here on the imaging discussion. And sorry for belaboring the point here, but really trying to understand maybe what changed versus when you first gave guidance a few months ago. Are you pricing in shared dynamics that are shifting in the category, and then you're now responding accordingly, like you intimated in your response to Jeff's question? Or are you seeing offices just having set equipment budgets, and, you know, those budget dollars are shifting to other categories in high tech, especially those that are, you know, maybe more under-penetrated relative to imaging and where new product development is higher, like scanners and 3D printing. Is that what's going on?

[Simon Campion, CEO at Dentsply Sirona]

Well, Jason, Simon here. Listen, I think, you know, the imaging part of our business, it's the highest price point, arguably, within the dental space. And with the macro situation and continued pressure on the macro situation, and the outlook for interest rates continuing to be higher for a longer than expected period of time, I think people are just hitting the pause button on that. As you noted, and as Jeff noted, we've been the high price player in this market for a couple of years. We felt that there was a gap in that space, OUS, that wouldn't be addressed by Orthophos SL, and that's why we have reintroduced it.

[Simon Campion, CEO at Dentsply Sirona]

But as Glenn said, and I think in response to one of the earlier questions, we are actively working not only by the reintroduction of Orthophos SL, but also with respect to financing and promotional programs with our distribution partners, to try and begin to address the challenges in the imaging market globally. And obviously, you know, we have noted numerous times in the past, we are arguably outweighed in Germany, and that economy is under significant pressure now, and so the legacy Sirona side of our business continues to struggle in Germany in particular.

[Jason Bednar, Senior Research Analyst at Piper Sandler]

Yeah, that makes sense. I'll Simon, I'll actually pick up on that last part of the response. Just with on Germany, I think you've been identifying these headwinds in that market for, you know, nearly a year now. I think it was 2Q of last year where you really first started talking about challenges in Germany. Did it take another step lower in the quarter? I mean, it sounded like it was, you know, still sluggish, but I'm just trying to tease out, like, did it take another step lower, or are we seeing more of the same out of that market?

[Jason Bednar, Senior Research Analyst at Piper Sandler]

Or I guess, I maybe ask a different way, do the headwinds here that you're experiencing from Germany on your, you know, growth performance, do those lessen meaningfully here near term as we anniversary through, you know, the first, you know, step down we saw in that market last year?

[Simon Campion, CEO at Dentsply Sirona]

Yeah, we actually had, Jason, we actually had 300 respondents to our survey in Germany, this quarter, which is, which is, you know, meaningful. You know, there is continued pessimism in that market about their practices and the dental industry as a whole. But, you know, the singular bright spot, arguably, in the survey from Germany is that the pessimism has reduced. In fact, it's back to the levels that we experienced when we did the survey in July of last year when we begun to highlight the imminent challenges that Germany was going to face. So there was an improvement in sentiment, but it was still, it's still negative

[Simon Campion, CEO at Dentsply Sirona]

And is in line with some of the other more negative countries, such as, you know, Australia and New Zealand as well.

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

Yeah, I would just add, Jason, that Germany, in the first quarter, was down, you know, over 15%. We expect double-digit declines here in the second quarter. I do think we'll see better performance in the back half of the year, although it's still gonna be down year-over-year in the back half of the year as well. But, you know, these are pretty substantial headwinds that we're dealing with right now in Germany. It has not gotten better from a results perspective. We've been seeing double-digit declines now for three consecutive quarters. So, you know, we do expect a bit of an improvement with the relaunch of Orthophos with respect to some of the customer sentiment data that we're seeing, but it's gonna be challenging through the remainder of the year. Probably less challenging, though, hopefully, in the back half of the year.

[Jason Bednar, Senior Research Analyst at Piper Sandler]

All right, great. Appreciate the color, guys. Thank you.

[Operator]

Thank you. One moment for our next question, please. And it comes from the line of Jon Block with Stifel. Please proceed.

[Jordan Bernstein, Equity Research Associate II at Stifel]

Good morning. Yeah, Jordan Bernstein on for Jon. Just wanted to continue a bit of the discussion on the shift to value here in dental, but specific to value implants. Its performance seems solid in the quarter. Another player mentioned, you know, solid performance in value implants last night as well. But so are we seeing an accelerated mix shift in the industry as dentist DSOs have now battled higher costs for a handful of quarters? And if so, you know, what does that mean for the implant portfolio of Dentsply Sirona, and how are you positioned there? Thanks.

[Simon Campion, CEO at Dentsply Sirona]

Yeah, listen, I think, I think we have, we have, you know, seen a shift over the past several quarters that people are very interested in, in the value-based, part of, of the, the implants business. And we are we're fortunate that we have a robust portfolio in value and a robust portfolio, in the premium, premium segment. Obviously, our, our, our results have been dramatically affected in, in Q1 by the performance in, in China, where we've been benefiting from, from VBP, and as we noted, we expect to continue to see solid volumes from China, although the g- the, the, the growth rates will, will drop as we anniversary the, the benefit that we have, foreseen for that. Is there, is there a str- strategic shift, to value?

[Simon Campion, CEO at Dentsply Sirona]

I would say it's definitely heading that way. You know, but as an organization where we've been under pressure for a number of years on our implants business, it may present an opportunity for us to present ourselves as the value and premium-based company within the implants world. Andreas?

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

Great.

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

Yeah, maybe just to add a little bit more to that is I think the implants market overall is still... We're still talking about adding penetration with additional accounts, additional customers, until we have a robust innovation pipeline, both for the value and the premium segment. And in premium, in particular, I think a lot of the digital connectivity, the integration across the technology and the workflows will continue to be important to those customers that really value sort of that integrated benefit that they can get in the premium segment. You know, not to say that there's also obviously a different value proposition that some of the other accounts are looking for, that are moving more towards value.

[Jordan Bernstein, Equity Research Associate II at Stifel]

Great, thanks. And then for my follow-up, I'll focus on Byte. A solid momentum there in the first quarter. It sounds like you know commercially launched with Byte+. Seems like it's out there at 30 locations, if I have that right, which is up five quarter-over-quarter, from the pilot. Any early feedback that you're able to share from the dentists on Byte+ would be appreciated, and then maybe, you know, how impression kits are trending thus far in 2Q. Thanks.

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

Yeah, thank you, for the question. I think Byte+, we're getting positive feedback from the accounts that we're working with. I think, as you can imagine, sort of this in-office scan, it allows us to capture an incremental portion of those customers or consumers that are already coming through our website. So it's a very good use of sort of our ad spend and dollars that way. We see that as we roll out, it's very important to be locally penetrated, so that, you know, we, we're actually accessible to those patients that come through the website, and that's why it's important to add.

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

You know, you'll see, I think, an accelerating ramp here in terms of the actual offices that are part of the network and part of our providers. So it's still early on, right? 30 sites or 35 sites now, as you said. And I think Glenn will circle back on the second part of your question.

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, on the impression kit growth, I mentioned it earlier without the specific number. I mean, we're still seeing impression kit growth that's in excess of 50%. And obviously, not all of that's gonna convert to revenue, but that's one of the lead indicators to revenue growth. And so, impression kit growth remains quite robust for us.

[Glenn Coleman, CFO at Dentsply Sirona]

I would also add that, Byte also has rolled out a bunch of new products, accessory products, teeth whitening, cleaners for the aligners, other wellness products, and that's actually got a really high attach rate, so that's very encouraging as well as we go forward. Still a small part of our Byte business, but that's gonna be an area of growth opportunity in the future.

[Simon Campion, CEO at Dentsply Sirona]

A final comment here, just to come back to your the original part of your question. You know, many of those sites where we have been in pilot have not only seen benefit from the Byte portfolio, but many of those customers have now signed up to the practice so that they can begin their, you know, preventative restorative treatments as well. These are customers who, in many cases, would not have had a primary dentist previously.

[Operator]

Thank you. One moment for our next question, please. And it comes from the line of Nathan Rich with Goldman Sachs. Please proceed.

[Sarah Conrad, Global Investment Research Associate at Goldman Sachs]

Hi, good morning. This is Sarah Conrad on for Nate. I just wanted to dive a little more into implant performance. You had pointed to a potential macro impact from the elective nature of this treatment, which is pretty consistent with what we've been hearing. But I guess we've heard from some peers that they've been pointing to a sequential softening in the demand environment for implants in the first quarter. So can you discuss any changes to implant market demand that you've seen, or changes in your consumer survey? And then as we think about that improvement needed in the U.S. implant business in the second half, can you just break out what we saw in Europe and North America implants in 1Q?

[Simon Campion, CEO at Dentsply Sirona]

Sure. Well, listen, you know, I think we've said before on calls such as these, that, you know, with respect to implants, maybe we're not the best company to provide any macro analysis, given our performance in the past. I think we have, for sure, seen a little bit of pressure from our customer survey, about, you know, the elective nature of procedures. You know, in general, overall, it's stable. The U.S. was about the same. Germany, the sentiment around implants actually improved a little bit in the quarter, but elsewhere, it's diminished.

[Simon Campion, CEO at Dentsply Sirona]

So net, net, it's probably about even on a global basis.

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, and just by geography, in the first quarter, both the U.S. and Europe were down low to mid-single digits, year-over-year, when we just look at our implants business. Obviously, overall, we grew the category. That was largely driven by China and the growth we saw there. And if you look at the portfolio, we grew double digits within value implants, and we're down in premium.

[Sarah Conrad, Global Investment Research Associate at Goldman Sachs]

Thank you. And then as we look to those 2026 EPS target of $3 and the, you know, path you laid out to 4%+ organic growth in 2025, do you believe that, like, what level of organic growth is needed in the second half of 2024 to remain on pace to reach those 2025 and 2026 targets?

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, this is Glenn. I'll take that one. I think first and foremost, nothing has changed relative to our path or our confidence to getting to the $3 of EPS by 2026. When we laid out our targets in November of last year, relative to getting to the $3, we basically assumed a normal macro environment, a non-recessionary environment, and normal patient traffic, really beginning in 2025. We knew that 2024 was gonna be a challenging year. We assumed very little growth in those assumptions. And so we'll have to see how the rest of the year plays out, but our path to $3 remains unchanged. We still need 4% organic growth over the period to get to the $3.

[Glenn Coleman, CFO at Dentsply Sirona]

If you look at that bridge, though, two-thirds of it are things in our control, things such as the restructuring savings, our global operations and transformation work that we're doing, improvements in our ortho profitability, and some of the other things around net investment hedges and so forth. All the things in our control are on track, and we're executing against those. The $0.40-$0.45 that's dependent on the 4% organic growth, you know, we'll have to see if the macro environment improves going into next year. Obviously, if it doesn't, it will create pressure on our ability to get to $3. But right now, we assume very little growth in our initial assumptions in 2024, but a return to a more normal macro environment and getting to that 4%+ growth in 2025.

[Glenn Coleman, CFO at Dentsply Sirona]

Obviously, we'll have to see how the rest of the year plays out.

[Operator]

Thank you. One moment for our next question, please. It comes from the line of Justin Lin with William Blair. Please proceed.

[Justin Lin, Equity Research Associate of Healthcare Sell Side at William Blair]

Hey, guys. Good morning. Thanks for taking the questions. I'll focus first on Byte. You know, that's sort of a slightly different question. How much of the strength and acceleration you kind of alluded to, do you think is still kind of attributable to that, sort of that SDC bonus, if you will, bonus, if you will? Or is there some other kind of dynamic at play here, like, you know, consumers perhaps getting going for more affordable options given the macro uncertainties? You know, really just trying to get a sense of how sustainable this growth is.

[Simon Campion, CEO at Dentsply Sirona]

Yeah, so I think, it's Simon. I think for sure we're benefiting from SDC.

[Simon Campion, CEO at Dentsply Sirona]

You know, we have invested behind the growth that we are seeing in increasing the number of treatment planners, being very selective, but increasing our commercial activities with respect to advertising. We have provided new financing options because as we've shared before, that this population are lower income families and individuals than perhaps would choose another type of aligner. So we've been very proactive, and I think that's helping drive performance to date. But it is select investment that drives profitable revenue growth. We are not investing to lose money here.

[Simon Campion, CEO at Dentsply Sirona]

We are driving profitable revenue growth, and we've continued to see a profit accrue from our Byte business. And as Glenn had said, we do expect to be north of 20% growth for Byte this year.

[Justin Lin, Equity Research Associate of Healthcare Sell Side at William Blair]

Got it. And just a follow-up question on Byte+, specifically, can you kind of remind us whether Byte+ margins will be better than regular Byte? And kind of maybe, you know, the timing around Byte overall kind of getting to corporate margins?

[Glenn Coleman, CFO at Dentsply Sirona]

Yeah, I think overall, there's not a significant differential in the margins for Byte+ versus Byte. There's a bit of a higher cost, but we're getting some of that back through price. So I wouldn't look at the margin differential as anything significant between the two. Relative to Byte getting back to corporate margin averages, right now, I would say that is not part of our plan over the next three years. We obviously are planning on seeing an improvement in our Byte profitability over the period, but I don't yet have a clear line of sight that we can get back to our corporate averages. I think if we can get significant improvement though, that is gonna be our goal here and get faster revenue growth.

[Justin Lin, Equity Research Associate of Healthcare Sell Side at William Blair]

Got it. Super helpful. Thank you so much.

[Operator]

Thank you. One moment while we get our next question. It's from Allen Lutz with Bank of America. Please proceed.

[Allen Lutz, Senior Equity Research Analyst of Healthcare Technology and Distribution at Bank of America]

Good morning. Thanks for taking the questions. A quick one for Glenn. I think in your prepared remarks, you talked about a 30 basis point benefit from restructuring savings in the quarter. I think that gets to about $0.01 against a $0.13 sort of implied guide here as part of the EPS outlook. Can you talk about where restructuring savings came in versus your expectations and sort of the cadence for that bucket over the course of the year? Thanks.

[Glenn Coleman, CFO at Dentsply Sirona]

So the 30 basis points improvement was our overall EBITDA margin improvement. Obviously, there's a lot of puts and takes in that number, so that's not necessarily the, I'll say, the net benefit from our restructuring activities. I would just say, though, when we look at the restructuring plans that we've got that have been, you know, ongoing and being executed against over the last, call it, five quarters, we're on track. I would expect most of the incremental savings to come here in the back half of the year.

[Glenn Coleman, CFO at Dentsply Sirona]

In fact, if I look at the EPS guidance, you know, if you assume a $0.20 increase in the second half of the year versus first half of the year, based upon the comments that we've made, you know, about a third of that improvement is gonna come from higher organic growth in the back half of the year, and two-thirds coming from the restructuring savings. So that's the way to think about how the, the cadence of the restructuring savings is gonna hit. So clearly, what that means is we're expecting our operating expenses on a dollar basis to come down in the back half of the year with the work that we're doing.

[Allen Lutz, Senior Equity Research Analyst of Healthcare Technology and Distribution at Bank of America]

That's helpful. Thank you very much.

[Operator]

Thank you. One moment while we get our next question. It's from the line of Michael Petusky with Barrington Research. Please proceed.

[Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research]

Hey, good morning. So I was wondering, you know, DS Core was highlighted quite a bit at the Investor Day, and you guys called it out again today, as you know, there's progress being made there in terms of utilization, new accounts, et cetera. I'm just wondering, is there a point in time where you guys start actually quantifying, "Hey, this is the percentage gains in terms of new accounts. This is, these are some metrics around utilization." Like, given that, you know, this is an initiative that, you know, certainly will take you deeper with accounts and give you some margin expansion opportunities, I mean, would it make sense to start quantifying this at some point? Thanks.

[Simon Campion, CEO at Dentsply Sirona]

Well, that's a good question, and we'll take it under advisement. You know, DS Core is has got multiple benefits for us, right? It is a unifying platform across all of our capital equipment. And so, you know, as we roll forward, we would expect to see the benefit in the capital side of our businesses. And then as we increase more functionality, we do expect to be able to monetize, to some extent, the software arm of that business, in particular. But to your point on quantifying the performance of DS Core, you know, I think we've said we're in excess of 20,000 accounts now with DS Core.

[Simon Campion, CEO at Dentsply Sirona]

We've just come off our largest quarter of DS Core subscriptions. We've added a number of new different functions to it in the past quarter, and we will continue to add new functionality to it throughout the year. And we have a very aggressive goal for our expectations with respect to subscriptions in 2024. As I said, you know, we see it as a unifying platform, and we are already, as we noted in the prepared remarks, in pilots with some DSOs, and we're hoping to expand that pilot. The benefits that DS Core accrues to customers, whether they're labs, DSOs or individual practices, are significant.

[Simon Campion, CEO at Dentsply Sirona]

Customers are beginning to share sentiment on the positive experience they're having with it, vis-à-vis efficiency of their practice.

[Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research]

Yeah. Yeah, I mean, I think I see all that, and that's why I'm interested in as much data as you guys are willing to provide. All right, a follow-up question. I'm going from that to the a tiny part of your business relatively, Wellspect. I'm just curious, Glenn. So I think you said mid-single digit to high single digit performance for 2024, if I heard that correctly, and I'm just looking sort of at the back half comps there. You know, and I guess I say this in context of the fact that you just delivered 5% growth versus a pretty easy first quarter comp.

[Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research]

I guess, what gives you the confidence that you can sort of deliver, you know, mid- to high-single-digit growth in that, given that, you know, the comp, particularly in Q4, is really tough? Thanks.

[Simon Campion, CEO at Dentsply Sirona]

Yeah, so listen, as to reflect on statements we've made before, we're pretty happy that Wellspect remains part of our business. As we noted in the remarks, we're investing in innovation and capacity expansion for Wellspect. We have launched a number of new products that are still accruing customers and performance. And in fact, over the next couple of weeks, we will launch yet another new product, LoFric Origo sleeve, which is directed at the spinal injury patients who have limited hand mobility and dexterity. So we're opening up another market for ourselves with the launch of that new product. And you know, confidence is high that we can get to our numbers in 2024 on Wellspect.

[Simon Campion, CEO at Dentsply Sirona]

As we've noted, it's a macro environment business. We've got a new general manager in place in Gothenburg, who knows the home care business extraordinarily well. And he is reshaping the team over there, and we expect continued and indeed accelerated performance from that group moving forward.

[Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research]

Okay, so, you know, essentially, if I was encapsulating that response, I mean, new products are gonna be a meaningful part of what helps drive that second half performance against, again, really tough comps.

[Simon Campion, CEO at Dentsply Sirona]

New products and execution.

[Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research]

Yeah. Okay, very good. Thank you, guys.

[Operator]

Thank you. Our last question, one moment, please. Our last question is from Erin Wright with Morgan Stanley. Please proceed.

[Erin Wright, Healthcare Services Analyst at Morgan Stanley]

Great, sorry, excuse me. Thanks. Can you provide us with an update on, like, SKU rationalization? Just remind us on how that impacts kind of the top line, too, as well, if at all, for you. And then, you know, how meaningful is that, or where do we stand on sort of SKU rationalization and your efforts there? Thanks.

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

Hey, Erin, it's Andreas. So, I think we've talked about before, SKU rationalization and optimization really is focused right now on our Endo and Resto portfolios. We're well on the way there. We're in the process of eliminating those SKUs that are, you know, really sitting in our system, not driving revenue. So that helps us with operational efficiencies across various plans. So we are realizing this benefit now. And then as we look at the next phase, which is optimizing a certain number of brands that we have in both of those areas, we're very closely coordinating this also with our network optimization efforts, right?

[Andreas Frank, Chief Business Officer at Dentsply Sirona]

And we're being very, I think, thoughtful and selective here, so that we can, in fact, transition the revenue and the brands, to other product lines that we have in the portfolio. So I think as of today, we're progressing towards the plan that we have laid out, for 2024, and I think more meaningful benefit to come out of that program in 2025 and 2026.

[Erin Wright, Healthcare Services Analyst at Morgan Stanley]

Okay. All right. Thank you so much.

[Operator]

Thank you. Now I would like to turn it back to Simon Campion for final comments.

[Simon Campion, CEO at Dentsply Sirona]

Thank you. Thank you all for joining today's call. Before we close, I would like to leave you with some, some key points. Dentsply Sirona is well positioned in attractive industries. We do have a robust customer-centric portfolio that supports end-to-end dental workflows, while on the continence care side, our Wellspect HealthCare business is investing in capacity and innovation. Our transformation continues to take shape operationally and culturally. Although there's much more to be done, we believe that executing on our plans will accelerate growth, profitable growth. Innovation stands as a vital part of our strategy. We have a healthy pipeline, and as we improve our customer centricity and discipline execution, we expect to deliver more value for our stakeholders.

[Simon Campion, CEO at Dentsply Sirona]

Finally, on behalf of the management team, I want to extend our gratitude to all Dentsply Sirona employees for their ongoing commitment to the business and to our transformation journey. Thank you.

[Operator]

With that, thank you for participating.

Participants

Executives

• Glenn Coleman, CFO

Analysts

• Allen Lutz, Senior Equity Research Analyst of Healthcare Technology and Distribution at Bank of America
• Andrea Daley, VP of Investor Relations at Dentsply Sirona
• Andreas Frank, Chief Business Officer at Dentsply Sirona
• David Saxon, Principal at Needham & Company
• Dylan Finley, Equity Research Associate at UBS
• Elizabeth Anderson, Senior Managing Director at Evercore ISI
• Erin Wright, Healthcare Services Analyst at Morgan Stanley
• Jason Bednar, Senior Research Analyst at Piper Sandler
• Jeff Johnson, Managing Director and Senior Research Analyst at Baird
• Jordan Bernstein, Equity Research Associate II at Stifel
• Justin Lin, Equity Research Associate of Healthcare Sell Side at William Blair
• Michael Petusky, Managing Director and Senior Research Analyst at Barrington Research
• Sarah Conrad, Global Investment Research Associate at Goldman Sachs
• Simon Campion, CEO at Dentsply Sirona