Glenn Coleman
Executive Vice President, Chief Financial Officer at DENTSPLY SIRONA
Thank you, 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 2023 outlook.
Dentsply Sirona had a very strong start to 2023, with first quarter organic sales growth of 5.1%, exceeding our outlook of approximately 1%. The first quarter outperformance on the top line of about $40 million was driven by stronger-than-expected growth in Consumables and Aligners. Our top line results also drove better-than-expected adjusted EPS. Though we're still in the early innings of our transformation work and have more work to do, we believe that delivering consistently on our commitments is critical to rebuilding investor confidence.
So let's begin on Slide 7. Our first quarter revenue was $978 million, which represents reported sales growth of 0.9%. Foreign currency negatively impacted sales by approximately $40 million as compared to the first quarter of 2022. Excluding the impact from foreign currency, organic sales grew 5.1% with strong regional performance in the US, Europe and Latin America. Excluding China, organic sales grew 6.6% overall. EBITDA margin of 16.4% was consistent with our outlook of at least 15%. On a year-over-year basis, EBITDA margin contracted 320 basis points due to continued foreign exchange and inflation headwinds, partially offset by favorable mix from Consumables and profitability improvements in Aligners. SG&A as a percentage of sales increased 220 basis points in the quarter primarily due to commercial headcount investments and trade events with customers, both of which we believe will drive better sales performance later this year.
Adjusted EPS in the first quarter was $0.39 as compared to $0.54 in the prior year quarter. We attribute $0.10 of the EPS decline to commercial investments, $0.10 to higher inflation and below-the-line expenses and $0.04 to foreign currency headwinds. This was partially offset by a $0.09 tailwind from strong organic sales. Operating cash flow in the quarter was an outflow of $21 million due to unfavorable changes in working capital, primarily driven by accounts receivable and accounts payable timing. Operating cash flow was also impacted by increased operating expenses associated with commercial investments and non-recurring charges, such as restructuring and remediation costs. As a reminder, we still expect to have significant cash outflows for severance and restructuring costs for the remainder of the year.
In the first quarter, we returned $27 million of cash to our shareholders through dividends, and we announced a $150 million accelerated share repurchase program. Our reduced share count in the quarter was primarily driven by the initial receipt of shares in March under the terms of the ASR. The ASR was completed at the end of April.
Let me now turn to our segment performance in the quarter on Slide 8. Organic sales in Technologies & Equipment, or our T&E segment grew 1.7%, while organic sales in the Consumables segment grew 9.8%. The T&E organic sales growth was led by strong growth in Aligners, up over 25% in the quarter versus prior year as well as strong growth in our CAD/CAM business, particularly in the US. These improvements were partially offset by lower volumes in Implants, Imaging and Instruments.
Aligners grew double-digits for the third consecutive quarter, driven by strong growth in both SureSmile and Byte. SureSmile continues to benefit from regional expansion, particularly in Europe and new product offerings and clinical differentiation. Our direct-to-consumer Aligner brand, Byte, also saw strong growth despite slowing consumer spending trends, driven by higher customer conversion rates and lower customer acquisition costs, which not only drove higher top line revenues but also better profitability. Our CAD/CAM business grew mid-single digits in the quarter, primarily due to wholesale demand in the US, which was expected as dealers had exited 2022 at lower inventory levels.
The Equipment & Instruments business declined by mid-single digits in the quarter, driven by lower demand in the US and Europe, but was partially offset by strong imaging growth in Canada. Implants was down high single digits in the quarter and performed in line with our projections. We continue to work through headwinds in China, including the impact of VBP. While we saw reduced patient traffic year-over-year, trends are improving, and we expect China to return to growth later this year.
Moving to consumables. Organic sales grew approximately 10%, primarily attributable to strong demand for restorative and preventive products. Retail demand for consumables was strong, particularly in comparison to the prior year period, which was impacted by the Omicron variant. The current year quarter also saw stable patient traffic across most geographies.
Now let's turn to Slide 9 to discuss first quarter financial performance by region. US organic sales grew 14.6%, driven by higher volume in Consumables, Aligners and CAD/CAM. While patient traffic in the US continues to be stable, we did see lower demand for Imaging equipment, which we attribute to higher interest rates and recessionary concerns in the market. Our US CAD/CAM dealer inventory levels grew $10 million sequentially in the first quarter, consistent with the expectations we laid out on our February earnings call. We expect CAD/CAM dealer inventory levels to fluctuate quarter-to-quarter and be slightly lower by the end of the year compared to current levels.
Turning to Europe. Organic sales grew 1.1%, due primarily to strong growth in both Consumables and Aligners. This growth was partially offset by softer demand for Imaging equipment.
Rest of world organic sales were approximately flat versus the prior year. Excluding China, rest of world organic sales had a strong quarter and grew 5.7% led by strong demand for Imaging equipment and Consumables. In China, as expected, we experienced lower sales across the portfolio as well as headwinds in implants due to the continued impact of VBP.
With that, let's move to Slide 11 to discuss our updated outlook for 2023. We've updated our full year outlook to reflect our better-than-expected performance in the first quarter as well as our increased confidence for the remainder of 2023. We're increasing the low end of our full year net sales range by $50 million to a new range of $3.9 billion to $3.95 billion, with organic sales now projected to be flat to up 2%. This represents a 100 basis point increase to the low end of our previous outlook range. While we're still operating in a challenging macro environment, we are seeing stable to improving patient traffic in key markets. In addition, foreign currency exchange rates are largely unchanged compared to our prior outlook. And as such, we're still expecting FX will be a 100 basis point headwind to full year net sales, most of which was realized in the first quarter. Based on current FX rates, we expect a minimal impact for the remainder of the year. We estimate full year EBITDA margin to be greater than 18%, unchanged from our prior outlook. Given the better-than-expected organic sales performance to start the year, we're also raising our full year adjusted EPS outlook by $0.05 on the low-end, which brings our adjusted EPS range to $1.85 to $2.00. The updated EPS outlook includes a weighted average share count of approximately 214 million, which includes the previous mentioned ASR.
For the second quarter, we expect a slight sequential increase in sales and adjusted EPS over the first quarter. On a year-over-year basis, Q2 organic sales is expected to decline as the prior year included the benefit of some back order recovery and a better capital equipment demand environment. While we anticipate fluctuations in our quarterly sales performance, we expect the first half of the year to show organic sales growth over the prior year period. We are confident in the progress we're making. We remain cautious on the external environment, particularly with capital equipment, as well as the overall macro challenges in certain markets such as China, Brazil and Australia. Wrapping up my second quarter comments, we expect EBITDA margins will be at least 16%.
Let's move to Slide 12 to quickly touch on upcoming changes to our segment structure. Starting in our second quarter, we'll begin reporting using a new segment structure. The new structure will include three dental segments, which are; Connected Technology Solutions, Implant and Orthodontic solutions and Essential Dental Solutions. Wellspect HealthCare, which operates in the continence care market for urinary and bowel dysfunction will be the fourth segment. The revised structure aligns with the new operating model that we detailed on our last earnings call and we believe will provide greater transparency in our financial reporting.
And with that, I'll now turn the call back to Simon.
