Q3 2024 Dentsply Sirona Inc Earnings Call
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Speaker Change: Is being recorded I would now like to hand, the conference over to your speaker today.
Speaker Change: Andrea Daly, Vice President of Investor Relations.
Andrea Daly: Thank you operator, and good morning, everyone welcome to the Densify Sirona third quarter 2024 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, Glenn Coleman, Chief Financial Officer, and Rich Rosenzweig, EVP corporate development and General counsel.
Speaker Change: I'd like to remind you that an earnings press release and slide presentation related to the call are available on the investors section of our website at Www Dot densify Sirona Dot com.
Speaker Change: 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.
Speaker Change: We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recently filed Form 10-K, and any updating information and subsequent SEC filings list. Some of the most important risk factors that could cause actual results to differ from our predictions.
Speaker Change: Additionally, on today's call our remarks will be based on non-GAAP financial results.
Speaker Change: We believe that non-GAAP financial measures offer investors valuable additional insights into our businesses financial performance enable the comparison of financial results between periods, where certain items may vary independently of business performance and enhanced transparency regarding key metrics utilized by management in operating our business. Please refer to our <unk>.
Speaker Change: Yes release for the reconciliation between GAAP and non-GAAP results comparisons provided are to the prior year quarter unless otherwise noted.
Speaker Change: <unk> cast replay of today's call will be available on the investors section of the company's website following the call and with that I will now turn the call over to Simon.
Simon Campion: Thank you Andrea and thank you all for joining US. This morning for Q3 2024 earnings calls.
Simon Campion: I will start with an update on bite then provide an overview of our Q3 performance and highlights.
Simon Campion: Dan will go over our Q3 financial results.
Speaker Change: I'll finish by covering our revised 2020 for outlook and a strategic operating update.
Speaker Change: First I want to take a moment to acknowledge Glenn and thank him for his leadership and many contributions to our company and its transformation journey over the past two years.
Speaker Change: We wish him well in his future endeavors.
Speaker Change: Let's start with some key points on slide three.
Speaker Change: In late October we announced the voluntary suspension of sales marketing and shipments of bite the liners and the impression kits.
Speaker Change: While the company conducts its review of certain regulatory requirements related to these products.
Speaker Change: We made this decision in communication with the FDA and remain in close contact with them.
Speaker Change: Patients are and will continue to be our top priority. We are committed to doing what's right for them.
Speaker Change: <unk> has communicated to customers that it is not selling impression kits, starting new cases of processing requirements for patients mid treatment.
Speaker Change: We are not at a point in our analysis to make a definitive decision concerning bites.
Speaker Change: And we are thoroughly evaluating strategic options, which may include a discontinuation of some or all of this business.
Speaker Change: Our decision will be data driven taking into account the legislative environment recent performance longer term prospects and the ongoing regulatory review, which may take time and require additional investment.
Speaker Change: We are continuing to assess the resources that bite for opportunities to leverage capabilities in our <unk>.
Speaker Change: Already redeploying assets to other parts of our business.
Speaker Change: In the meantime, we have moved swiftly to significantly reduce discretionary spending.
Speaker Change: We promised on day, one to be transparent with you and we will continue this philosophy as we determine the next steps for <unk>.
Speaker Change: Turning to third quarter performance, we delivered $951 million in revenue with organic sales up one 3% driven by timing of EES sales with distributors purchasing in anticipation of our first U S ERP deployment.
Speaker Change: Excluding this sales were down 0.8%.
Speaker Change: We continue to see pressure on our implants and equipment business and Cadcam growth was propelled in part by the launch of Prime has gone to in September.
Speaker Change: Reduced conversion rates provides drove a sequential double digit decline.
Speaker Change: Sure small experienced mid single digit growth in the quarter over the prior year period.
Speaker Change: Now, let's shift to guidance.
Speaker Change: As a result of market pressures that continue to impact the U S equipment as well as bites, we are revising our full year 2024 outlook, which I will cover later.
Speaker Change: As we told you with the bite announcements bite had approximately $40 million in sales in Q3 and was dilutive to adjusted EPS.
Speaker Change: While we see innovation as a growth catalyst and important value driver for our customers we remain cautious on the overall macroeconomic environment.
Speaker Change: Capital equipment, and electric procedure headwinds persisted throughout the third quarter and the environment remains uncertain.
Speaker Change: Our October customer survey over 1300 respondents indicated that our major markets remain largely unchanged.
Speaker Change: Patient traffic was flat in the U S and Germany, while Japan and China. Both saw declines in results showed a slight decrease in utilization, particularly in elective procedures.
Speaker Change: Sentiment in Germany remain negative, but it was encouraging to see at least for now some improvements in practices desire to purchase capital equipment.
Speaker Change: Now before we discuss Q3 results in more detail I'd like to share. Some recent business highlights on slide four.
Speaker Change: Starting with operational updates.
Speaker Change: On November 1st we went live with our first ERP deployment in the U S building on our previous rollout in the U K, which I'll cover in a bit more detail shortly.
Speaker Change: We have now executed the majority of our phase II transformation activities and are on track to deliver full run rate savings by the end of 2025.
Speaker Change: Moving to innovation.
Speaker Change: We were pleased to launch plan is going to in September which sets a new milestone in digital dentistry.
Speaker Change: It is hardware independent wireless and powered by <unk>.
Speaker Change: The link between <unk> to <unk> core represents further integration of our digital ecosystem.
Speaker Change: And provides our customers more flexibility and efficiency within their practice, while also enabling a better patient experience, which all supports practice growth.
Speaker Change: With <unk>, we continue to drive adoption with over 32000 unique users as of the end of Q3, representing approximately 20% growth sequentially.
Speaker Change: Last quarter I shared that R&D had identified opportunities to reallocate funds into higher return programs.
Speaker Change: Specifically, we plan to invest and assure small orthodontic software accelerate these core capabilities.
Speaker Change: And make further investments across our connected technology platforms.
Speaker Change: Since the launch of <unk>, we have delivered over 85, new software updates, adding functionality and capability to the platform.
Speaker Change: We have a healthy innovation pipeline for <unk> and have demonstrated accelerated adoption when we add significant functionality.
Speaker Change: As we continue to drive innovation, a key component of our strategy is digital connectivity with DS core serving as the hub.
Speaker Change: Transformation to digital dentistry status, where they scan and the versatility and portability of prime's going to whether it's linked to <unk> core provides a gateway to treatment options and planning.
Speaker Change: Looking forward, we see many more opportunities to advance connected technologies, and we plan to accelerate our pace to get there by allocating more of our R&D dollars to that area.
Speaker Change: Within Cts, we also expanded the relaunch of the <unk> S. L imaging line, bringing it to additional markets in EMEA and Asia Pac.
Speaker Change: And eds, we launched <unk> pro plus our tabletop Endo motor in the U S.
Speaker Change: Initial reception has exceeded our expectations with our full year projections already achieved by the end of Q3.
Our strategy is digital connectivity, with DSCore serving as the hub. The transformation to digital dentistry starts with a scan, and the versatility and portability of PrimeScan2 with its link to DSCore provides a gateway to treatment options and planning.
Speaker Change: Sales Rep engagement has also been strong with 100% of reps having sold in motor.
Speaker Change: Through Q3, we successfully received five 10-K clearances for five products.
Speaker Change: This is a testament to the improvements we have made in the execution of our NPD and regulatory processes and we look forward to bring these innovations to market.
Looking forward, we see many more opportunities to advance connected technologies, and we plan to accelerate our pace to get there by allocating more of our R&D dollars to that area.
Speaker Change: Wrapping up our highlights clinical education remains an important component of how we bring value to our customers.
Within CTS, we also expanded the relaunch of the Orthophos SL imaging line, bringing it to additional markets in EMEA and AsiaPAC.
Speaker Change: In Q3, we hosted multiple events around the world, including DS World in the U S, Spain and Italy.
Speaker Change: Our mis implants conference in Europe.
In EDS, we launched XMART ProPlus, our tabletop ender motor in the U.S. Initial reception has exceeded our expectations, with our foliar projections already achieved by the end of Q3.
Speaker Change: At DS World Las Vegas, we hosted over 4000 total participants and offered more than 100 clinical education courses.
Speaker Change: And we exceeded our sales projections for this event.
Speaker Change: Additionally, in Q4, we are holding inaugural DS World in Japan, and Brazil.
sales rep engagement has also been strong with 100% of reps having sold a motor
Speaker Change: And with that I'll turn it over to Glenn to provide more details on Q3 financials.
Through Q3, we successfully received 510K clearances for five products. This is a testament to the improvements we have made in the execution of our NPD and regulatory processes, and we look forward to bringing these innovations to market.
Glenn Coleman: Thanks Simon.
Glenn Coleman: Good morning, and thank you all for joining us.
Glenn Coleman: I want to start by expressing what a privilege to spend to be part of the <unk> Sirona team.
Wrapping up our highlights, clinical education remains an important component of how we bring value to our customers.
Glenn Coleman: I'm proud of what we've accomplished together and remain confident in the strategy and vision, that's driving the company's transformation journey.
In Q3, we hosted multiple events around the world, including DS World in the US, Spain and Italy, and our MIS Implants Conference in Europe.
Glenn Coleman: Before we turn to a discussion on our non-GAAP third quarter financial results.
Glenn Coleman: Let me mention that we recorded at a roughly $500 million noncash after tax charge in Q3 related to goodwill.
At DS World Las Vegas, we hosted over 4,000 total participants and offered more than 100 clinical education courses, and we exceeded our sales projections for this event.
Speaker Change: Impacting the orthodontic an implant solution segment.
Speaker Change: This charge was the result of sustained macroeconomic pressures legislative challenges impacting bite and weakened demand and competitive pressures and implants.
Additionally, in Q4, we are holding inaugural DS Worlds in Japan and Brazil.
Speaker Change: And with that, I'll turn it over to Glenn to provide more details on Q3 financials. Glenn.
Speaker Change: Let me now move to slide five to discuss third quarter results.
Speaker Change: Revenue was $951 million, representing an increase of 0.5% on a reported basis and one 3% on an organic basis compared to the prior year quarter.
Glenn: Thanks Simon. Good morning and thank you all for joining us.
Glenn: I want to start by expressing what a privilege it's been to be part of the Dentspice Zorona team.
I'm proud of what we've accomplished together and remain confident in the strategy and vision that's driving the company's transformation journey.
Speaker Change: Foreign currency headwinds were less than anticipated, but still had a negative $8 million.
Speaker Change: The 80 basis point impact on sales.
Speaker Change: Before we turn to a discussion on our non-GAAP third quarter financial results, let me mention that we recorded a roughly $500 million non-cash after-tax charge in Q3 related to Goodwill impacting the orthodontic and implant solution segment.
Speaker Change: On a constant currency basis growth was attributed to eds, which included an estimated $20 million in U S distributor orders.
Speaker Change: Just in advance of the November one ERP deployment in the U S. It was shipped and recognized as revenue in the third quarter.
Speaker Change: This charge was the result of sustained macroeconomic pressures, legislative challenges impacting bite, and weakened demand and competitive pressures in implants.
Speaker Change: Excluding these timing impacts overall organic sales declines 0.8%.
Speaker Change: We also saw growth in Cadcam supported by innovation and the recent launch of Prime scan too.
Speaker Change: Let me now move to slide five to discuss third quarter results.
Speaker Change: However, this growth was offset by declines in equipment and instruments.
Speaker Change: Revenue was $951 million, representing an increase of 0.5% on a reported basis and 1.3% on an organic basis compared to the prior year quarter.
Speaker Change: Orthodontic and implant solutions as we continue to see market pressures and equipment and elective procedures.
Speaker Change: EBITDA margins declined 40 basis points versus prior year.
Speaker Change: Foreign currency headwinds were less than anticipated, but still had a negative $8 million or 80 basis point impact on sales.
Speaker Change: Due to a gross margin decline from unfavorable product mix shift lower volume and lower pricing in Cts.
Speaker Change: On a constant currency basis, growth was attributed to EDS, which included an estimated $20 million in U.S. distributor orders placed in advance of the November 1st ERP deployment in the U.S. that were shipped and recognized as revenue in the third quarter.
Speaker Change: Cost savings realized through our restructuring programs, partially offset some of this decline and contributed to the sequential improvement in EBITDA margins.
Speaker Change: Adjusted EPS for the quarter was 50 up.
Speaker Change: 3% versus the prior year quarter, driven by the timing of distributor orders as previously noted.
Excluding these timing impacts, overall organic sales declined 0.8 percent.
Speaker Change: We also benefited from a lower share count, which was partially offset by higher tax rate.
Speaker Change: We also saw growth in CAD CAM supported by innovation and the recent launch of PrimeScan2.
Speaker Change: Operating cash flow of $141 million was up 5% compared to the prior year quarter due.
Speaker Change: However, this growth was offset by declines in equipment and instruments and orthodontic and implant solutions as we continue to see market pressures in equipment and elective procedures.
Speaker Change: Due to the timing of accounts payable and improved inventory management.
Speaker Change: In the third quarter, we completed a $100 million of share repurchases.
Speaker Change: Even the margins declined 40 basis points versus prior year, mainly due to a gross margin decline from unfavorable product mix shift, lower volume, and lower pricing in CTS.
Speaker Change: Bringing the year to date total cash returned to shareholders through share repurchases and dividends of $345 million.
Speaker Change: We maintain a strong balance sheet with $296 million of cash and cash equivalents as of September 30th.
Speaker Change: Cost savings realized through our restructuring programs partially offset some of this decline and contributed to the sequential improvement in EBITDA margins.
Speaker Change: And our leverage ratio increased slightly to two eight times.
Speaker Change: Adjusted EPS for the quarter was $0.50, up 3% versus the prior year quarter, driven by the timing of distributor orders as previously noted.
Speaker Change: Let's turn to slide six for segment performance.
Speaker Change: Starting with the essential dental solutions segment, which includes endo resto preventative products.
Speaker Change: We also benefited from a lower share count, which was partially offset by a higher tax rate.
Speaker Change: Organic sales increased seven 5%.
Speaker Change: Merrily driven by the previously mentioned impact from the timing of U S distributor orders.
Speaker Change: Operating cash flow of $141 million was up 5% compared to the prior year quarter through the timing of accounts payable and improved inventory management.
Speaker Change: This impact was a shift of revenue from Q4 to Q3 and is not expected to impact our full year revenue guidance for Etfs.
Speaker Change: In the third quarter, we completed $100 million of share repurchases, bringing the year-to-date total cash return to shareholders through share repurchases and dividends to $345 million.
Speaker Change: Rest of World sales also showed an improvement over the prior year quarter with growth in China and Canada.
Speaker Change: Moving to the orthodontic and implant solutions segment.
Speaker Change: We maintained a strong balance sheet with $296 million of cash and cash equivalents as of September 30th, and our leverage ratio increased slightly to 2.8 times.
Speaker Change: Organic sales declined three 9% with a decline of approximately 1% in the liners.
Speaker Change: Sure Smile, a professional aligner brand grew 6%.
Let's turn to slide 6 for segment performance.
Speaker Change: We saw another quarter of strong performance in Europe and rest of world.
Speaker Change: Starting with the essential dental solution segment, which includes endo, resto, and preventive products, organic sales increased 7.5 percent, primarily driven by the previously mentioned impact from the timing of U.S. distributor orders.
Speaker Change: We've made recent commercial investments and expanded our sales force.
Speaker Change: This was partially offset by soft demand in the U S.
Speaker Change: Fight, our direct to consumer Aligner brand declined 7% year over year, and 19% sequentially, primarily due to lower conversion rates and other adverse impacts from legislative challenges in certain states.
Speaker Change: This impact was a shift of revenue from Q4 to Q3 and is not expected to impact our full year revenue guidance for EDS.
Speaker Change: Rest of world sales also showed an improvement over the prior year quarter with growth in China and Canada.
Speaker Change: Moving to implants per statics sales declined mid single digits versus the prior year quarter.
Speaker Change: Sales were down in the U S and Europe.
Speaker Change: Moving to the orthodontic and implant solution segment, organic sales declined 3.9% with a decline of approximately 1% in aligners.
Speaker Change: In China declined largely due to facing a difficult comp as the prior year period included the first full quarter on the volume based procurement program.
Speaker Change: Switching to the connected technology solutions segment organic sales increased sequentially, but declined one 4% versus the prior year quarter.
PureSmile, a professional liner brand, grew 6%.
Speaker Change: We saw another quarter of strong performance in Europe and the rest of the world. We've made recent commercial investments and expanded our sales force.
Speaker Change: Global Cadcam grew mid single digits due to increased sales of mills in intra oral scanners to our distributors, which.
This is partially offset by self-demand in the U.S.
Speaker Change: Which includes the benefit from the recent launch of private scan too.
Speaker Change: Late, our direct-to-consumer aligner brand declined 7% year-over-year and 19% sequentially, primarily due to lower conversion rates and other adverse impacts from legislative challenges in certain states.
Speaker Change: Equipment and instruments declined mid single digits as the demand environment for equipment continues to be soft due to macro headwinds competitive pressures and high interest rates.
Speaker Change: Moving to implants and prosthetics, sales declined mid-single digits versus the prior year quarter.
Speaker Change: While certain countries started to reduce interest rates in Q3, we did not see any notable impacts in the quarter.
Bills were down in the U.S. and Europe.
Speaker Change: and China declined, largely due to facing a difficult comp as the prior year period included the first full quarter on the Volume-Based Procurement Program.
Speaker Change: Wrapping up segment results organic sales for wells back to health care were flat versus the prior year quarter.
Speaker Change: We saw continued growth in Europe, and rest of world while sales in the U S were negatively impacted by the timing of orders from a large distributor.
Speaker Change: Switching to the connected technology solution segment, organic sales increased sequentially but declined 1.4% versus the prior year quarter.
Speaker Change: On a full year basis, well expect is still expected to grow mid single digits, largely driven by new product launches.
Speaker Change: Global CAD CAM grew mid-single digits due to increased sales of mils and intraoral scanners to our distributors.
Speaker Change: Now, let's turn to slide seven to discuss third quarter financial performance by region.
which includes the benefit from the recent launch of PrimeScan2.
Speaker Change: U S organic sales increased five 1%, primarily due to the timing of distributor orders in Etfs.
Speaker Change: While Cts grew at the wholesale level retail demand lagged in the quarter.
Speaker Change: While certain countries started to reduce interest rates in Q3, we did not see any notable impacts in the quarter.
Speaker Change: This contributed to a sequential increase in distributor inventory of approximately $48 million.
Speaker Change: Which also included the initial stocking of prime scan to and the expected seasonal increase.
Speaker Change: Wrapping up segment results, organic sales for WellSpec HealthCare were flat versus the prior year quarter.
Speaker Change: This compares to a $28 million sequential increase in the prior year quarter.
Speaker Change: We saw continued growth in Europe and rest of the world, while sales in the U.S. were negatively impacted by the timing of orders from a large distributor.
Speaker Change: We continue to closely monitor wholesale and retail dynamics, and we expect distributor inventory levels to return to historical averages by the end of the year.
Speaker Change: On a full year basis, WellSpec is still expected to grow mid-single digits, largely driven by new product launches.
Speaker Change: Our U S clear aligner business declined 4% versus the prior year quarter.
Speaker Change: Now let's turn to slide 7 to discuss 3rd quarter financial performance by region.
Speaker Change: Largely driven by declines in our base business and softer demand trends.
Speaker Change: U.S. organic sales increased 5.1% primarily due to the timing of distributed orders in EDS.
Speaker Change: In addition, implants declined year over year due to market pressures.
Speaker Change: Turning to Europe organic sales declined 2%.
Speaker Change: While CTS grew at the wholesale level, retail demand lagged in the quarter.
Speaker Change: Due to lower demand for implants, and continued pressure on equipment, most notably in imaging.
Speaker Change: This contributed to a sequential increase in distributor inventory of approximately $48 million, which also included the initial stocking of PrimeScan2 and the expected seasonal increase.
Speaker Change: This was partially offset by <unk> growth of over 20% and continued growth and well expect healthcare.
Speaker Change: Germany grew in the quarter. The first time, we've seen growth in five quarters.
Speaker Change: This compares to a $28 million sequential increase in the prior year quarter.
Speaker Change: We're starting to see slight improvements in sentiment in this market, but remain cautious until we see further signs of improvement.
Speaker Change: We continue to closely monitor wholesale and retail dynamics, and we expect distributor inventory levels to return to historical averages by the end of the year.
Speaker Change: Rest of World organic sales grew <unk>, 6% in the quarter.
Speaker Change: Implants grew in the region, despite the tough comp for China.
Speaker Change: Our U.S. clear aligners business declined 4% versus the prior year quarter.
Speaker Change: And eds in cab camera also bright spot benefiting from recent product launches.
Speaker Change: largely driven by declines in our bite business and softer demand trends.
Speaker Change: Growth in these areas was offset by a decline in equipment and instruments.
In addition, implants decline year-over-year due to market pressures.
Speaker Change: And now I will turn the call back over to Simon to discuss the full year outlook and strategic operating update.
Speaker Change: Turning to Europe, organic sales declined 2% due to lower demand for implants and continued pressure on equipment, most notably in imaging.
Simon Campion: Thank you Glenn.
Simon Campion: First I'll cover our updated outlook for 2024 on slide eight and then get into our strategic operating update.
Speaker Change: This was partially offset by SureSmile growth of over 20% and continued growth in well-specced health care.
Simon Campion: We are revising our full year 2024 outlook based on the continued market pressures with equipment in the U S as well as bite.
Speaker Change: Germany grew in the quarter the first time we've seen growth in five quarters.
Speaker Change: We're starting to see slight improvements in sentiment in this market, but remain cautious until we see further signs of improvement.
Speaker Change: Let me note that our forecast revisions do not include potential impacts from any additional remediation measures. We may take or decisions. We may make related to our continued assessment of strategic options for the bike business.
Speaker Change: The rest of World Organic Sales grew 0.6% in the quarter.
Speaker Change: Implants grew in the region despite the tough comp for China.
Speaker Change: That said, we wanted to provide you with current updates to our forecast and the spirit of ongoing transparency.
Speaker Change: and EDS and CAD camera also bright spots benefiting from recent product launches.
Speaker Change: Growth in these areas was offset by a decline in equipment and instruments.
Speaker Change: We expect organic sales to be down two 5% to three 5% compared to our prior estimate of flat to down 1%.
Speaker Change: And now I'll turn the call back over to Simon to discuss the Full Year Outlook and Strategic Operating Update.
Speaker Change: We expect full year net sales to be in the range of $3 79 billion to $3 82 billion with less of an FX headwind based on current rates.
Simon: Thank you Glenn. First I'll cover our updated outlook for 2024 on slide 8 and then get into our strategic operating update.
Speaker Change: Our outlook for adjusted EBIT margin is now approximately 17, 5% down from our prior estimate of greater than 18% driven by lower sales volume and unfavorable mix impacting gross margin, which offset the positive contributions to profitability from our multiple initiatives.
Speaker Change: We are revising our full year 2024 outlook based on the continued market pressures with equipment in the U.S. as well as bite.
Speaker Change: Let me note that our forecast revisions do not include potential impacts from any additional remediation measures we may take or decisions we may make related to our continued assessment of strategic options for the BITE business.
Speaker Change: With these updates we now expect 2020 for adjusted EPS to be in the range of $1 82.
Speaker Change: That said, we wanted to provide you with current updates to our forecast in the spirit of ongoing transparency.
Speaker Change: To a $1 86.
Speaker Change: Representing slight growth over the prior year at the midpoint of the range.
Speaker Change: We expect organic sales to be down 2.5% to 3.5% compared to our prior estimate of flat to down 1%.
Speaker Change: While we don't plan to issue guidance until February I think the obvious question. Many of you will have surrounds our original $3 adjusted EPS target for 2026.
Speaker Change: We expect full year net sales to be in the range of $3.79 billion to $3.82 billion, with less of an FX headwind based on current rates.
Speaker Change: Clearly the macro and other pressures like bite have created significant hurdles to achieving this target and we will provide you an update with our year end results.
Speaker Change: Our outlook for adjusted EBITDA margin is now approximately 17.5%, down from our prior estimate of greater than 18%, driven by lower sales volume and unfavourable NICs impacting gross margin, which offset the positive contributions to profitability from our multiple initiatives.
Speaker Change: Moving onto a strategic update starting on slide nine.
Speaker Change: This year, we have faced challenges that have negatively impacted our performance such as market and other dynamics and most recently bite.
Speaker Change: Specifically, we have underperformed in certain major geographies and product categories.
Speaker Change: With these updates, we now expect 2024 adjusted EPS to be in the range of $1.82 to $1.86 representing slight growth over the prior year at the midpoint of the range.
Speaker Change: We told you for example at the beginning of the year that we expected growth acceleration in implants in the second half and we have not delivered the progress we anticipated.
Speaker Change: As one of the steps to address these issues. We have made a number of leadership changes as we continue to evolve to a high performance disciplined and accountable culture in this company.
Speaker Change: While we don't plan to issue guidance until February, I think the obvious question many of you will have surrounds our original $3 adjusted EPS target for 2026.
Speaker Change: The initiatives, we have underway to transform densify sirona are progressing as planned and we remain confident in the strategy and the priorities, we set to execute on them.
Speaker Change: Clearly the macro and other pressures like bite have created significant hurdles to achieving this target and we will provide you an update with our year-end results.
Speaker Change: Last quarter, we shared our plans to unlock further efficiency through a second phase of transformation.
Moving on to our strategic update starting on slide 9.
Speaker Change: We have now executed on over 70% of the identified actions and remain on track to deliver on our phase II savings goal.
Speaker Change: Now moving to slide 10, with an update on our foundational initiatives.
Speaker Change: We told you, for example, at the beginning of the year that we expected growth acceleration in implants in the second half, and we have not delivered the progress we anticipated.
Speaker Change: These initiatives focus on simplifying our portfolio driving network efficiency and modernizing our ERP landscape.
Speaker Change: As one of the steps to address these issues, we have made a number of leadership changes as we continue to evolve to a high performance, disciplined and accountable culture in this company.
Speaker Change: We are advancing our SKU optimization work is focused on our endo and rest of the portfolios with approximately 50% of non revenue generating skus already eliminated.
Speaker Change: The initiatives we have underway to transform Dance by Serona are progressing as planned. We remain confident in the strategy and the priorities we've set to execute on them.
Speaker Change: We expect the remainder of these skus to be eliminated by the end of this year and we expect to migrate most of the revenue generating skus in 2025.
Speaker Change: Last quarter, we shared our plans to unlock further efficiency through a second phase of transformation.
Speaker Change: Our supply chain team continues to seek opportunities to improve our network performance. This.
Speaker Change: This quarter, we ceased operations at one of our U S manufacturing sites.
Speaker Change: We have now executed on over 70% of the identified actions and remain on track to deliver on our Phase 2 savings goal.
Speaker Change: We have closed three manufacturing sites and four distribution centers and continue to explore more opportunities to drive more network efficiency.
Speaker Change: Now moving to slide 10 with an update on our foundational initiatives.
Speaker Change: As I mentioned earlier, we have now completed two deployments as part of our ERP rollout of SAP <unk> Hana.
Speaker Change: These initiatives focus on simplifying our portfolio, driving network efficiency, and modernizing our ERP landscape.
Speaker Change: We went live with the UK in August and resumed business activities at full volumes within three days.
Speaker Change: We are advancing our SKU optimization work, focused on our Endo and Resto portfolios, with approximately 50% of non-revenue generating SKUs already eliminated.
Speaker Change: As you would expect with these implementations we have made some limited adjustments and fine tuning to our processes.
Speaker Change: We expect the remainder of these SKUs to be eliminated by the end of this year, and we expect to migrate most of the revenue-generating SKUs in 2025.
Speaker Change: Overall, we are very pleased with the UK launch and we'd like to recognize the collaboration and patients from customers and distributors as we executed this initiative.
Speaker Change: Our supply chain team continues to seek opportunities to improve our network performance.
Speaker Change: Earlier. This month, we also went live with our first deployment in the U S primarily involving the resto and preventive businesses within EDF.
Speaker Change: This quarter we ceased operations at one of our U.S. manufacturing sites.
Speaker Change: To date, we have closed three manufacturing sites and four distribution centers and continue to explore more opportunities to drive more network efficiency.
Speaker Change: This is the first in a series of U S deployments with additional Rollouts scheduled to continue throughout 2025 and into 2026.
Speaker Change: As I mentioned earlier, we have now completed two deployments as part of our ERP rollout of SAP S4 HANA.
Speaker Change: As you all know ERP implementations require tremendous effort.
Speaker Change: And I'd like to take this opportunity to thank our global teams for their great work to get us to this point.
Speaker Change: Earlier I touched on phase II of our business transformation journey aimed at reducing operating expenses to fund key reinvestments.
Speaker Change: As you would expect with these implementations, we have made some limited adjustments and fine-tuning to our processes.
Jeff Johnson: Overall we are very pleased with the UK launch and would like to recognize the collaboration and patience from customers and distributors as we executed this initiative.
Speaker Change: We previously noted that an important part of this reinvestment focuses on creating our own demand and augmenting both DSS and our distributor sales efforts.
Jeff Johnson: Earlier this month, we also went live with our first deployment in the U.S., primarily involving the resto and preventive businesses within EDS.
Speaker Change: To that end, we've already hired over 75 of the approximately 100 virtual reps we plan to have in place by the end of Q1 2025.
Speaker Change: This is the first in a series of U.S. deployments, with additional rollouts scheduled to continue throughout 2025 and into 2026.
Speaker Change: Trained reps began engaging with customers this very week.
Speaker Change: Again, we view, having a virtual sales team as a cost effective way to improve our relationships with and proximity to our end customers.
Speaker Change: As you all know, ERP implementations require tremendous effort, and I'd like to take this opportunity to thank our global teams for their great work to get us to this point.
Speaker Change: Let me give you a little more color on some of the redeployment efforts, we are undertaking as it relates to the team at bite.
Speaker Change: Earlier I touched on phase two of our business transformation journey aimed at reducing operating expenses to fund key reinvestments.
Speaker Change: We have recruited a very talented workforce there with the dynamics of this business requiring advanced skill sets for developing a robust patient funnel strong social media presence.
Speaker Change: We previously noted that an important part of this reinvestment focuses on creating our own demand and augmenting both DS's and our distributors sales efforts.
Speaker Change: <unk> service E Commerce technology, and software data assessment and treatment planning.
Speaker Change: To that end, we have already hired over 75 of the approximately 100 virtual reps we plan to have in place by the end of Q1 2025.
Speaker Change: Many of these skills translate very well to our other businesses and initiatives and can potentially accelerate our efforts discussed last quarter.
trained reps began engaging with customers this very week.
Speaker Change: Getting closer to the customer generating our own demand and improving our sure small software and e-commerce user experience.
Speaker Change: Again, we view having a virtual sales team as a cost-effective way to improve our relationships with and proximity to our end customers.
Speaker Change: Now let me close on slide 11, with a few summary remarks.
Speaker Change: On October 24th we announced the voluntary suspension of sales marketing and shipment of bite the liners and impression kits.
Speaker Change: Let me give you a little more color on some of the redeployment efforts we are undertaking as it relates to the team at Byte.
Speaker Change: As we have discussed we are conducting a regulatory review and evaluating strategic options for bites moving forward.
Speaker Change: We have recruited a very talented workforce there, with the dynamics of this business requiring advanced skill sets for developing a robust patient funnel.
Speaker Change: In the quarter, we posted organic sales growth of one 3% driven by a mix of timing and eds and Cts orders.
Strong social media presence
Speaker Change: Customer Service, E-commerce, Technology and Software, Data Assessment, and Treatment Planning.
Speaker Change: Without the distributor order timing impacted sales declined <unk>, 8%.
Speaker Change: Many of these skills translate very well to our other businesses and initiatives, and can potentially accelerate our efforts discussed last quarter, like getting closer to the customer, generating our own demand, and improving our SureSmile software and e-commerce user experience.
Speaker Change: As anticipated benefits from our transformation work positively contributed to EBITDA.
Speaker Change: We are revising our 2024 outlook in light of the market pressures impacting equipment in the U S and the evolving landscape with bite.
Speaker Change: We remain committed to innovation as evidenced by the launch of Prime has gone to in September and the launch of <unk> Pro plus in the U S.
Speaker Change: Now let me close on slide 11 with a few summary remarks.
Speaker Change: On October 24th, we announced the voluntary suspension of the sales, marketing, and shipment of bite aligners and impression kits.
Speaker Change: We have a healthy innovation pipeline and as we couple it with better process discipline and focus we see opportunity to alter the return trajectory of our total innovation pipeline.
Speaker Change: As we have discussed, we are conducting a regulatory review and evaluating strategic options for BITE moving forward.
Speaker Change: In the quarter, we posted organic sales growth of 1.3%, driven by a mix of timing in EDS and CTS orders.
Speaker Change: Lastly, our business transformation journey continues to take shape as we execute strategic plans and initiatives to make densely sirona, a more efficient more effective and stronger company.
Without the distributor order timing impact, sales declined 0.8 percent.
Speaker Change: And with that I will open it up for questions.
Speaker Change: As anticipated, benefits from our transformation work positively contributed to EBITDA.
Speaker Change: Thank you we will now conduct the question and answer session. Just started off I would like to turn it over to the CEO Simon Campion.
Speaker Change: We are revising our 2024 outlook in light of the market pressures impacting equipment in the U.S. and the evolving landscape with Biden.
Simon Campion: Good morning, and thank you.
Speaker Change: We remain committed to innovation as evidenced by the launch of PrimeScan2 in September and the launch of XMAR-ProPlus in the U.S.
Simon Campion: The ongoing spirit of transparency I want to inform you all about a developing situation today in Germany.
Speaker Change: We have a healthy innovation pipeline and as we couple it with better process, discipline and focus, we see opportunity to alter the return trajectory of our total innovation pipeline.
Simon Campion: We are aware that federal and local authorities and tax investigators arrived at our facilities in Bernstein and hang out with this morning.
Simon Campion: Obviously this is a very recent developments and we intend to cooperate with the authorities.
Speaker Change: Lastly, our business transformation journey continues to take shape as we execute strategic plans and initiatives to make Densply Sirona a more efficient, more effective and stronger company.
Simon Campion: Our facilities in Germany are operating as normal.
Simon Campion: And we do want to continue to emphasize that ethics and compliance is at the center of everything we do.
And with that, I will open it up for questions.
Simon Campion: And finally on this matter given the evolving status of the situation, we will be unable to answer any questions on this subject during Q&A.
Speaker Change: Thank you. We will now conduct the question and answer session. To start it off, I would like to turn it over to the CEO, Simon Campion.
Simon Campion: And with that I'll hand, it back to the operator to walk us through Q&A. Thank you.
Speaker Change: Good morning and thank you. In the ongoing spirit of transparency, I want to inform you all about a developing situation today in Germany.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please allow only one question and one follow up question only.
Speaker Change: We are aware that federal and local authorities and tax investigators arrived at our facilities in Bentheim and Hanau this morning.
Speaker Change: Please standby as we compile the Q&A roster.
Speaker Change: Obviously, this is a very recent development and we intend to cooperate with the authorities.
Speaker Change: Our first question comes from David Saxon at Needham <unk> Company. Your line is now open.
Speaker Change: Our facilities in Germany are operating as normal and we do want to continue to emphasize that ethics and compliance is at the center of everything we do.
Speaker Change: Great Good morning, Simon and Glenn Thanks for taking my questions.
Speaker Change: Hey, Glenn Good luck on your next chapter I have thank you for your questions.
Speaker Change: And finally, on this matter, given the evolving status of the situation, we will be unable to answer any questions on this subject during Q&A.
Speaker Change: Great just two questions one by one on implants. So on by can you just give us.
Simon Campion: An update on how long you think the suspension might last and then in terms of cost tied to buy.
Speaker Change: And with that, I'll hand it back to the operator to walk us through Q&A. Thank you.
Thank you.
Speaker Change: It sounds like the cost in the quarter at least it was around 40 million or in that range does that include Cogs and opex or just opex and then on the opex side, how much or what percent.
Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Please allow only one question and one follow-up question only.
Speaker Change: Can you reallocate to other parts of the business if it does go away and how much.
Please stand by as we compile the Q&A roster.
Speaker Change: Would be viewed as more discretionary.
Speaker Change: Yes, good morning, David I'll say I'll take the first part and then Glenn will have a crack at the second part of your question.
Speaker Change: Our first question comes from David Saxon at Needham & Company. Your line is now open.
Speaker Change: I would say that we are.
Speaker Change: We're still conducting the review in all of the necessary analysis that go into this.
Speaker Change: A multi factorial assessments that involves regulatory technical commercial.
Speaker Change: And operational.
Speaker Change: So on Byte, can you just give us an update on how long you think the suspension might last?
Speaker Change: And it does need to take into account the.
Speaker Change: The legislation legislative environment, we find ourselves in recent performance longer term prospects of this business.
Speaker Change: And then in terms of cost tied to bite, it sounds like the cost in the quarter at least was around $40 million or in that range, does that include COGS and OPEX or just OPEX?
Speaker Change: And as I noted the ongoing regulatory regulatory review, which may take time and require further investment on our part so.
Speaker Change: And then on the OPEC side, how much or what percent can you reallocate to other parts of the business if light does go away and how much would be viewed as more discretionary?
Speaker Change: We want to be.
Speaker Change: Switch blood diligence.
Speaker Change: I'm trying to get an answer.
Speaker Change: Two to you all but also to our to our employees.
Speaker Change: Good morning, David. I'll take the first part and then Glenn will have a crack at the second part of your question. Listen, I would say that we are still conducting the review and all necessary analysis that go into this.
Speaker Change: Swiftly as possible, we have taken very fast action.
Speaker Change: On the cost on the cost side, we've ceased all marketing activities for example, we informed.
Speaker Change: Or shall we say relevant employees yesterday that.
Speaker Change: It's a multifactorial assessment that involves regulatory, technical, commercial, and operational. And it does need to take into account the legislative environment we find ourselves in.
Speaker Change: Their jobs will be.
Speaker Change: Ceasing to exist over the next couple of weeks.
Speaker Change: The redeployment of assets that we think can be redeployed as ongoing but we already have moved different groups of people such as our software developers over to other areas of our business and so Glenn do you want to correct. It.
Glenn Coleman: Part of that question, Yes, I think the only thing we can say around the P&L is the most recent quarter, we did about $40 million of revenue, that's obviously down versus prior year, it's down sequentially close to 19% or so.
Glenn Coleman: So the business has been declining it is accretive to our gross margins, but dilutive to EBITDA margins. So there is a high opex costs associated with this business.
Glenn Coleman: I think we've even said that most recently operated at a loss in the most recent quarter. So.
Speaker Change: The business has been declining deteriorating and.
Speaker Change: Yes, it is accretive to gross margins, but overall dilutive to our operating profit and are actually in a loss position in the most recent quarter. So I think that gives you a general idea about the type of Opex. This business hasn't Simon mentioned, we're taking action, where we can to take out as much cost as possible in the short term here to minimize.
Speaker Change: The potential impact.
Speaker Change: Yes.
Speaker Change: Okay. That's super helpful. Thanks for that and then my second question is just on the implant. So it weakened sequentially I guess could you talk about.
Speaker Change: Performance across value versus premium.
Speaker Change: Then.
Speaker Change: As it relates to China.
Speaker Change: I guess are you expecting that region to be down until you lap the BBB GBP com.
Speaker Change: And then lastly on an implant you talked about some leadership changes can you just talk about kind of how you see the strategy going forward.
Speaker Change: Any update on kind of the expectations around returning to growth and market growth. Thanks, so much.
Speaker Change: Yeah. Thanks, David So on the value side, we saw we saw a decline this quarter for the first time this year.
Speaker Change: Part of our part of our business and as we informed you before that represents 25 or so percent of our total business that was impacted by by some unique.
Speaker Change: <unk>.
Speaker Change: Well, obviously, we're lapping the China situation. So that's one the situation.
Speaker Change: In the middle East with with Turkey.
Speaker Change: They won't importantly, any products manufactured in Israel, that's had a significant impact on us. So so far this year and again in Q3 and then.
Speaker Change: There is a timing issue with respect to either in.
Speaker Change: Central Europe as well so that is that is certainly impacting us in general around electus.
Speaker Change: We saw a decline in our survey of as I said over 13 under people.
Speaker Change: Particularly in Japan, and China, but Fortunately, we saw no further degradation.
Speaker Change: In the U S and Germany so.
Speaker Change: That's where we are with the performance in the in the quarter.
Speaker Change: And that we have.
Speaker Change: We have simply fails to to live up to our own internal expectations on this we've made.
Speaker Change: We want to communicate the value that we bring at the upper end and the.
Speaker Change: The low middle of the range with our with our EMS MSM Mis implants.
Speaker Change: And so we felt some some change and freshening up was needed and so we've taken that and feel it.
Speaker Change: It is we have the portfolio we feel in a Christmas we will win in this space. We have we have invested heavily in clinical education and expansion of the sales team, particularly in the U S. In this.
Speaker Change: In this space so the only reasons for us to fail or internal reasons and so we're trying to remediate those right now.
Speaker Change: Great. Thanks, so much.
Speaker Change: One moment for our next question.
Speaker Change: Next question comes from Kevin Caliendo of UBS. Your line is now open.
Kevin Caliendo: Thanks, and thanks for all the transparency on this situation.
Speaker Change: Can you just remind us first like how big Germany is for you in terms of sales or any other.
Speaker Change: Any other numbers you can provide.
Speaker Change: And then I guess second question more macro at this point given how the macro is.
Simon Campion: Simon as you sit there how do you think about.
Simon Campion: Investment versus cost saves like is the macros such that it's an opportunity to try to take share as things are bad and Mike, let's educate everybody and lets throw money at the problem and as things get better we'll be in a really good situation or you had at <unk>.
Speaker Change: Point, where hey.
Speaker Change: It's bad, which just circle the wagons and.
Speaker Change: I know you have this cost savings program, but how do you think about investment versus cost saves.
Speaker Change: The macro is just extending worse than you had imagined.
Speaker Change: Yes. Thank you. Thank you Kevin so in relation to the.
Speaker Change: The first of our Germany represents about 10% of our total of our total business.
Speaker Change: It is.
Speaker Change: There is quite a healthy portion of that that's in the connector technology legacy legacy Sirona sorry.
Speaker Change: Sirona business we're in.
Speaker Change: Back to.
Speaker Change: With respect to cuts versus versus investment I think we've said that we cannot cut our way to growth.
Speaker Change: I think we've tried to be very.
Speaker Change: Very diligent with respect to taking out costs in certain areas of our business that are that are not customer facing.
Speaker Change: Just thinking of infrastructure costs that we feel are unnecessary.
Speaker Change: Investing in areas that will stimulate growth.
Speaker Change: In areas that are higher growth categories for example.
Speaker Change: Refer you back to our Investor day presentation. When we said Hey, we believe we should be growing at market and implants, and that's a mid to high single digit growth market.
Speaker Change: Strong double digits in the liners, obviously bite has impacted that but as those sort of areas that we do want to invest in that we are at a competitive disadvantage with respect to feet on the street and capabilities and also invest in and what should I say the hygiene of this company by getting our websites up by getting our e-commerce.
Speaker Change: Stop by making it easier to do business with et cetera et cetera. So.
Speaker Change: We are we see we see where we have spent money in areas that are not driving creating demand and enhancing the customer experience and so we're taking money from the air and investing a tube to set ourselves up to make us as I said in my remarks, a stronger company moving forward.
Simon Campion: Thanks Simon.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Jeff Johnson of Baird. Your line is now open.
Speaker Change: Thank you good morning, guys.
Speaker Change: Simon.
Speaker Change: On the base commentary you made here in the first question in the Q&A about notices going out to employees and obviously, you're moving some of your.
Speaker Change: Other employees other parts of the company things like that.
Speaker Change: Secondly, it sounds like you're telling us you're shutting down the business with I'll, just say, we're shutting down the business and I understand there is making people issues here involved in multiple public call and all that but at least from our side of the table from an investor standpoint is that how we should be looking at things at least for now taken out of our model take it out of our expectations on a go forward basis, adding penny.
Speaker Change: If it comes back we can deal with it then but for now Thats, maybe the safe way to think about things.
Speaker Change: Note that that is that's not what I'm, saying, Jeff what.
Speaker Change: I'm, saying, we have we have a lot of a lot of work to do it's a complex situation that we find ourselves in and as you rightly said.
Speaker Change: A lot of people impacts that.
Speaker Change: In that in that business, we have a lot of technical work to do regulatory work consultation with FDA I'm trying to figure out a path for this.
Speaker Change: Project to get back to the market and then if there is a path plus the commercial viability of being back in the market as Glenn noted in his response to Davids question, we did about 40 or so million in this last quarter. It was dilutive to our business.
Speaker Change: Middle of the P&L is quite burdensome in this business.
Speaker Change: And so when we look at.
Speaker Change: The legislative environment, how much it's going to take to get back into the market. Then we have to determine if the view is worth that client if the climate is possible.
Speaker Change: So we're not I'm, not saying anything anything about it yet.
Speaker Change: I'm not trying to duck and dive a question but.
Speaker Change: The facts as we see them right now yes.
Speaker Change: Yes, no that's great and then Glenn maybe help us out just a lot of volatility here. These last couple of quarters can you just kind of level set us what are you exiting 2024 run rate savings on the cost savings initiatives, where are those cost savings expected to run rate by the end of 2025.
Speaker Change: So really kind of looking at what would be the incremental potential cost savings in 2025, we can still expect through the P&L number one and number two as I am.
Speaker Change: Look at kind of that low to mid 40 <unk> guidance for Q4 I can use the last couple of years I can use pre COVID-19 years, using a lot of different ways of looking at Q4 as a percentage of your typical earnings year, I think I can get to a number anywhere from about $50 to $2 for next year.
Speaker Change: I know youre not guiding to 2025, but is my thinking correct.
Speaker Change: It's more of the range the streets sitting at $2 28. It just seems impossible for me to believe we can get anywhere near that next year or so kind of take that mid low to mid forties and kind of apply whatever fourth quarter percentage, we want to kind of be more in that range I suggested.
Speaker Change: Yes. Thanks for the question, Jeff I think as it relates to the restructuring savings.
Speaker Change: The first restructuring program is complete was completed in Q2 that was two.
Speaker Change: $200 million of annualized savings.
Speaker Change: We've obviously announced the second restructuring program, which is anywhere from $80 million to $100 million. That's I'd say on track and allow those run rate savings will be seen in 2025.
Speaker Change: So that's how we look at the restructuring program, obviously as we look at the business Simon mentioned some of the reinvestment that we're going to be doing in the business and we haven't quantified how much will flow through the bottom line versus be reinvested, but.
Speaker Change: We're on track with respect to our restructuring programs that have been announced.
Speaker Change: As it relates to Q4 in the low 40 type number.
Speaker Change: Just keep in mind the base business is having a large impact on our fourth quarter forecast, we've essentially removed all revenue associated with shipments beyond October 24th which is when we initiate the ship hold and while the revenue is obviously removed there's still cost in this business that we're working through right and so you could take.
Speaker Change: That to me and there should be less of an impact as you go into 2025 on a quarterly basis. Once we work through all of those items, but.
Speaker Change: Nevertheless, we are not going to comment any further on 2025, So I would say just in relation to the cost statement that but then may Jeff.
Speaker Change: Jeff.
Jeff Johnson: We have stopped discretionary spending in this business. So costs are people costs for the most part right now.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our question comes from Jason Bednar at Piper Sandler Your line is open.
Jason Bednar: Hey, good morning, Thanks for taking the questions and good luck to you Glenn in your next endeavors here.
Speaker Change: Wanted to dig in a little bit more on the Cts segment in your Cadcam comments and apologies if any of this has already been addressed I'm bouncing between a couple calls but.
Speaker Change: The lower retail demand and CAD Cam.
Speaker Change: Whether this is it all come in ahead of your peers to launch.
Speaker Change: And then can you talk about the headwinds youre seeing and how much sheet attribute to the maybe the macro and the level of interest rates versus maybe how much might be competitive headwinds in scanners and printers are really just trying to understand what these questions what might be exogenous and you know what.
Speaker Change: Maybe.
Speaker Change: Cleaner trend or exit rate might look like in CAD cannot do you actually have PFS to Washington out there.
Speaker Change: Yes.
Speaker Change: Morning, Jason.
Speaker Change: The delta between retail and the manner.
Speaker Change: In Q1, and Q Q2 was pretty reasonable and we saw a significant delta in Q3 between those between those two variables and across the it's across the board it's not just us.
Speaker Change: Not just on the.
Speaker Change: The scanner business. So I don't think it was related to any any pent up demand for client has gone too.
Speaker Change: Although we havent we have done.
Speaker Change: Very well with with plans going to since its since it launched where.
Speaker Change: We have sold in excess of 900 900 cameras around around the world.
Speaker Change: It has been in terms of units was the best quarter of scanners. This year in the second best quarter.
Speaker Change: For scanners in three years.
Speaker Change: So that's certainly helped us this this.
Speaker Change: This past quarter, if we look at customer sentiment is shared in.
Speaker Change: Our previous.
Speaker Change: In the prepared remarks with that.
Speaker Change: That it had it had degraded in some areas, but the Germany had stopped.
Speaker Change: Stop the degradation and actually some of the survey results came back that the German customers are now reconsidering investments.
Speaker Change: In their digital digital workflows and interesting data point I think you'd all agree is thats only 27% of German dentists actually have a scanner. So I think theres a lot of room for digitalization in Germany. Once we get past some of the some of the macro the macro headwinds.
Speaker Change: And.
Speaker Change: Those three D printers are a small part of our business, we had a good quarter in three D printers with a good quarter on.
Speaker Change: Mills. So we were reasonably pleased with what we sold in the quarter. It's just the retail thing is hasnt had an impact and given the the survey data that we have where we want to be cautious moving forward.
Speaker Change: Okay, Alright fair enough and then for my follow up and maybe a little bit bigger picture.
Speaker Change: Maybe a little bit of a follow up to what.
Speaker Change: What Jeff just asked that and I don't mean to be be critical here, but when we think strategically about the savings plans you've had in place shareholders really havent seen these materialize at the bottom line.
Speaker Change: Earnings are basically flat year over year, that's despite head count coming down or sorry share count coming down by about 5% this year.
Speaker Change: You talked about deploying a large chunk of those phase one savings even some of the phase II savings back into growth initiatives, but the growth just hasn't really materialized.
Speaker Change: So the question here is how or whether you think about reevaluating maybe some of those business investments whether the returns on that spend justify the investment and does there come a point, where you'd look to drop more to shareholders at the bottom line. So that you can get back to growing earnings.
Speaker Change: I think thats.
Speaker Change: Very fair question Jason.
Speaker Change: Understood.
Speaker Change: We think about here frequently.
Speaker Change: As I noted in my response to <unk>.
Speaker Change: To Jeff's question, there are areas of our business, where we have been under Resourced.
Speaker Change: Our output in the trenches and those those areas are we feel represent areas of growth in dentistry and four densely sirona.
Speaker Change: In particular.
Speaker Change: I noted in response to that we don't think we can we can cut our way to growth here.
Speaker Change: <unk>.
Speaker Change: We have the portfolio, we have been investing in <unk>.
Speaker Change: And sales teams in clinical education. For example, we're fixing the software piece on unsure smile, we've got headwinds with bite.
Speaker Change: And so.
Speaker Change: Yes.
Speaker Change: Driving topline growth is of considerable importance to us pre eminence importance to us and we feel the investments that we're making will get us there.
Speaker Change: Demonstrated with the liners.
Speaker Change: First we grow.
Speaker Change: We posted.
Speaker Change: Very solid growth in Europe, this year and indeed in the rest of the world.
Speaker Change: In North America, our <unk> business.
Speaker Change: If you exclude that one.
Speaker Change: <unk> partner.
Speaker Change: We have a significant headwind with we actually grew mid single digits. So the areas, we invest in with the exception of implants.
Speaker Change: We are we are unlocking value.
Speaker Change: And the great work that's been done on the on the other hygiene factors such as operations.
Speaker Change: Is going to is going to show significant benefit when the macro turns we begin to get the true leverage from the actions that we've taken to make <unk> a more efficient company.
Speaker Change: Yes, the only I would add to Simon's comments are.
Speaker Change: Our operating expenses year over year are going to be down.
Speaker Change: So I think the challenge we have is the revenue levels are coming down faster than that so we.
Speaker Change: We are seeing a reduction in overall operating expenses as a result of the actions that we have taken but we have a revenue challenge, which is why EPS flat year over year.
Speaker Change: And we have we haven't.
Speaker Change: Returned over $300 million I think or so this.
Speaker Change: This year Atlanta to investors in the form of share buybacks and dividends.
Speaker Change: Alright very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jon Block Stifel. Your line is now open.
Speaker Change: Great. Thanks, guys good morning.
Speaker Change: Glenn for <unk>, the implied <unk> organic and.
Speaker Change: And there might be down high single digits or so when we tie out.
Speaker Change: So do we think about maybe a 400 basis point year over year impact.
Speaker Change: From bi.
Speaker Change: Some impact from the eds pull forward.
Speaker Change: Into three Q from <unk> to 'twenty mill, I guess, where im trying to go with this is we all sharpen our pencils on 25 just to arrive at like a normalized core revenue for four Q optically again, it might be down high single digits is a little difficult, but do you think it's fair to say, maybe it's <unk>.
Speaker Change: <unk> to down low single digits, when we make some of those adjustments again, most notably the bi and EES pull forward just as we can get a better job off our trajectory into 'twenty five.
Speaker Change: Yes, I think if you look at the organic growth implied guidance for Q4, its down high single digits.
Speaker Change: And keep in mind, there is $20 million of consumables revenue that we called out relative to being a pull forward from Q4 into Q3, so you'd have to adjust $20 million for that and then really the rest of the decline is coming from the bite situation and just to put in the context right. So we stopped shipping on.
Speaker Change: October 24th and so the rest of the quarter revenues on a $40 billion type business or.
Speaker Change: From a quarterly perspective is out of the numbers. So you can do the math on that to figure out what the impact of betas and then the rest of it is coming out of North America and soft retail demand.
Speaker Change: So that's how we're looking at Q4 right now.
Speaker Change: Okay got it fair enough and then just bigger picture question. There is some chatter out there.
Speaker Change: For <unk> and there's a good amount of talk about benefits being reduced and what that does or doesn't mean for the dental industry and maybe more specifically implants. So would love your thoughts on how you view that going into 2025, and what that may or may not mean.
Speaker Change: For the implant market and maybe even more specifically identify Sharon as initiatives, most notably in North America for implants. Thanks.
Speaker Change: Yes, Thanks John.
Speaker Change: Definitely on top of on top of the macro these reductions and benefits are I think are going to have an impact on customers' willingness to pay more out of pocket for implants, perhaps for four of liners and so on so I think we will we will see an impact.
Speaker Change: To turn back again to Jason Jason's question.
Speaker Change: There are still segments that are attractive growers when you when you compare it to two core dentistry.
Speaker Change: So we would still feel that continuing to to invest there and get.
Speaker Change: Get rid of the internal cobwebs that we have to get growth in those areas is still an area of immense interest for us. So.
Speaker Change: No doubt, it's a headwinds coupled with macro interest rates.
Speaker Change: The lack of willingness to to invest in capital equipment and then these these recent patient patient downturn that we've seen particularly in Japan and in China.
Speaker Change: I think we're in for.
Speaker Change: A slightly longer period of compression here then everyone had hoped.
Speaker Change: Okay.
Speaker Change: Thanks for the color.
Speaker Change: One moment for our next question.
Speaker Change: Our question comes from Erin Wright at Morgan Stanley. Your line is now open.
Speaker Change: Great. Thank you could you give us an update on just like the distribution channel your relationships, there and kind of the conversations how those have been going.
Speaker Change: At the recent disclosure around chicken and we did.
Speaker Change: Getting some of those relationships.
Speaker Change: Do we think about that being points of distribution across your business and kind of what's in the channel some of the stocking dynamic pull forward just how we should think about that thanks.
Speaker Change: Yeah. So I'll take the first part and then Glenn can comment on the.
Speaker Change: Channel stocking.
Speaker Change: As we were.
Speaker Change: We are still heavily reliant on our distributors. They do great work for us with respect to our friends at Patterson, We continue to work closely with them day in day out in fact, we had a a senior meeting with them soon.
Speaker Change: High level meeting with them over the past couple of weeks, we continue to be in discussion about the points of contention between us.
Speaker Change: And we hope that we get to an amicable solution here on the in the not too distant future but.
Speaker Change: As I noted back in Q2, we do we do a lot of great work to enable their success.
Speaker Change: So that's the that's the crux of the of the challenge that we have.
Speaker Change: And Glenn do you want to comment on the.
Glenn Coleman: Just in terms of the orders we saw healthy orders from our dealers in the third quarter I mentioned, we had a $48 million sequential increase from Q2 to Q3 in our equipment business part of Thats normal seasonality with DS World also saw an uptick in orders from prime scan too.
Speaker Change: And I would just highlight that with that dealer inventory increase there were no special incentives provided to these dealers.
Speaker Change: Surrounding that and that compares to 28 million a sequential increase in the prior year. So it was.
Speaker Change: Situation that created elevated inventory levels and we're just being careful given what we're seeing in terms of the retail demand.
Speaker Change: As we move forward into Q4, and then I mentioned earlier also that $20 million increase in dealer inventories associated with consumables and that was directly associated with our ERP conversion and making sure that we minimize any risk in Q4 around that whole conversion. So that was intentional again no. One special incentives were given associated with that but we got our.
Speaker Change: Our orders in earlier and got some of that delivered in the third quarter.
Speaker Change: Okay. Thanks, and then just on SKU rationalization you commented on it earlier, but has there been any changes in terms of that cadence or where youre at now in terms of this SKU rationalization effort.
Speaker Change: And just remind me like that doesn't necessarily meaningfully impacted topline.
Speaker Change: For you or are you thinking about that differently in terms of the mix.
Speaker Change: Yes, no no.
Speaker Change: No major changes since our last update Aaron we expect to have all the all the non revenue skus gone by by the end of the year and we expect the majority of revenue generating skus to be migrated by the end of of 25. So.
Speaker Change: That's no no material change to our thinking since our since our last update.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Next question comes from Michael Cherny at Leer Nic Partners. Your line is now open.
Michael Cherny: Hi, good morning.
Speaker Change: On for Mike.
Speaker Change: Looking ahead.
Speaker Change: How should we think about what horizontal.
Speaker Change: Organic growth during peak season.
Speaker Change: Assuming the team can be more.
Speaker Change: Onshore smile I know that there are investments the company is making.
Speaker Change: And software and the question to the ortho market and lastly, how would you characterize the current and expected uptake insurer smile with those orthodontists.
Speaker Change: Software update is there anything else, that's keeping share smile back.
Speaker Change: <unk> from branching into the ortho space mall.
Speaker Change: Okay.
Speaker Change: Good morning, let me start with maybe the second part of your question.
Speaker Change: Our sales team our commercial teams for the most part focus on.
Speaker Change: General General Dentistry.
Speaker Change: So thats the majority of our of our.
Speaker Change: Sure some of our revenue comes from that group of from that group of clinicians as.
Speaker Change: As we noted on our last call when we get the front end of the software fixed because thats. The general feedback that we get from some from the community.
Speaker Change: Then we will invest in a commercial team to to beginning to begin going calling on orthodontists try and accelerate even even more growth obviously that sets.
Speaker Change: Our competitor friends won't take that line down and it's going to be a tough battle, but we do feel we.
Speaker Change: We do feel that the the clinical offering that we have based on fewer refinements.
Speaker Change: And fewer anchor anchoring points confirm the inefficiencies.
Speaker Change: The benefits.
Speaker Change: Benefits to two conditions, whether they are GPS orthodontists.
Speaker Change: In relation to your comment about sure small growth I think our comments from earlier you should use it.
Speaker Change: Consider those we've grown very healthily.
Speaker Change: Europe and those areas, where we've invested.
Speaker Change: Like Japan and Brazil.
Speaker Change: And if you listen to my comments I think excluding that one.
Speaker Change: One partner that we had that have stopped purchasing we grew in the mid single digits insurance Marlin and in North America.
Speaker Change: We cannot foresee any reasons why that would not would not continue and then back to linking it back to buy.
Speaker Change: As I noted in the prepared remarks.
Speaker Change: We have some talented people at site on the software and demand generation side.
Speaker Change: With likely be deploying some of those to help us with the issuance of <unk> software and to help us stimulate some further awareness of sure smile as a.
Speaker Change: As a very significant brand and the clear aligner.
Speaker Change: Marketplace.
Speaker Change: Got it thanks, and if I could sneak in one one last one.
Speaker Change: Revenue generating SKU reduction in 2025 any idea of the impact that has on top line is that if I'm correct.
Speaker Change: Mostly coming from the EES segment.
Speaker Change: Yes so.
Speaker Change: I don't think we've ever shared with what the what the impact would be on the.
Speaker Change: On the top line, obviously, we've been very cautious cautious about that.
Speaker Change: It's primarily focused on the endo and rest of our businesses today. The work is focused on those businesses today.
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Brandon Basquez at William Blair. Your line is open.
Brandon Basquez: Good morning, everyone and thanks for taking my question.
Speaker Change: Hey can we go back maybe for a second unimplanted and I'm kind of curious if I'm sure you guys have done kind of a postmortem internally, where you expect it to be today.
Brandon Basquez: And I know you are kind of adjusting things on a go forward basis, you are hiring new leadership, but what was it you think that Hasnt gone to plan in the past couple of quarters or a year or two just to better understand like where you guys are what hasn't worked and what needs to be fixed still on a go forward basis.
Speaker Change: Yes, Thanks, Brandon I think.
Brandon Basquez: <unk>.
Brandon Basquez: The investments we've made in <unk> and commission plans in the number of feet on the street.
Brandon Basquez: And new products, new product development that we've introduced over the past couple of years in a very significant.
Brandon Basquez: Investment in clinical education, I think they are all are all the right moves.
Brandon Basquez: So.
Brandon Basquez: It comes back to are we equipping our our team and the right way to be successful in the marketplace against a very strong competitor with a very robust very robust portfolio.
Brandon Basquez: And.
Brandon Basquez: We just have to be we have to be far more aggressive and equip the teams in a far more meaningful way to convey convey the value of our products at the top end of.
Brandon Basquez: The middle of the middle of the of the implant implant market. So.
Brandon Basquez: Net net.
Brandon Basquez: Our rate of new accounts has not offset the decline that we've seen over the past over the past several years. So we just have to we have to go in and do a reset.
Speaker Change: But again everything we've heard Brendan and there's no reason why we should not be successful in this marketplace even.
Brandon Basquez: Our sites, we're not that egregious, let's grow with the market rate that was the that was the plan for <unk>.
Brandon Basquez: For 2026, let's be at market growth. So I don't think it was an egregious or aggressive plan I think it was a fair plan. We have not delivered so we have to go in to do a further postmortem.
Brandon Basquez: Yes.
Brandon Basquez: All people more accountable to commitments that have been made.
Speaker Change: Okay, and maybe one quick follow up if I could squeeze it in real quick.
Speaker Change: You guys had mentioned hiring a new virtual internal sales team just curious if you could give us examples of where you envision that virtual sales team really plugging into the commercial organization and when you might start to see some P&L benefits from those investments going forward. Thank you.
Speaker Change: Yeah. Thanks, Brandon So as I noted in.
Speaker Change: In the prepared remarks, we have an excess of 75 of these individuals hired right now they are actually they are actually starting to make holes to date.
Speaker Change: Two customers in a specific region.
Speaker Change: In the U S.
Speaker Change: We would we would expect.
Speaker Change: I will begin generating revenue.
Speaker Change: For us in 25, obviously 24, it's very late but they have to build relationships with the with the targets the targets.
Speaker Change: I think there's opportunity across our portfolio certainly I would say in the <unk> side, it's probably a little a little more straightforward to get there, but when we look at the accounts the account breakdown.
Speaker Change: Customers that we serve I think we leave a lot of money on the table, we have a long tail of accounts, who purchased only a couple of thousand.
Speaker Change: Only a couple of thousands of dollars worth of product from us each year.
Speaker Change: And I think theres, an opportunity in that type of account to get a slightly bigger slice of Altair.
Speaker Change: Their of their business. So that's that's that's what they're focused on.
Speaker Change: And it's all about it's all about getting closer to the customer creating demand for whatever channel.
Speaker Change: Is served by that particular product line. So if it's endodontics, we will survey if it's prevention of a resto sign or pilot center or our other distributors in the U S will also but it is all about.
Speaker Change: The densify name out further into the dental community.
Speaker Change: Demonstrating the value that we that we can bring and trying to earn the right to acquire some more business from all 150000 dentists in the U S.
Speaker Change: Our final question comes from Allen Lutz.
Speaker Change: Bank of America. Your line is now open.
Speaker Change: Hi, there this is dev on for Alan lots of Bofa.
Speaker Change: Had a quick question on implant just following up on the conversation there.
Speaker Change: Considering some of the commentary and setting the expectations here.
Speaker Change: One.
Speaker Change: Should we still think about getting to market growth in 2026, and then expectation.
Speaker Change: Just curious what you think about any additional investments needed there on product or pricing changes given some of that.
Speaker Change: Competitive landscape and changes there.
Speaker Change: And what is required to get.
Speaker Change: Market growth in 2025, I'm sorry in 2026.
Speaker Change: Good morning, I don't think were going to provide any more guidance at this point with respect to 25% to 26 gross or or lack of growth in implants.
Speaker Change: <unk>.
Speaker Change: Bill I don't think its in the Green just thought that we should be growing at that market as I've said in response to a previous question.
Speaker Change: The work that we've done to assess our portfolio has said as we've noted several times that we don't have any major gaps.
Speaker Change: We are investing in clinical education, maybe we need to pivot that and drive more local education and get get at these referral networks that seem to be causing us the.
Speaker Change: The challenges to to unlock those.
Speaker Change: I think quite simply it comes down to our own ability to execute and to equip our reps and educate our reps.
Speaker Change: To have robust conversations with the Implantologist community the referral network.
Speaker Change: And a much faster way.
Speaker Change: You will not have this large sale while all the while.
Speaker Change: It filled up their.
Speaker Change: <unk>, but get out faster into the marketplace and begin creating demand.
Speaker Change: It's a multi factorial issue is to use that word I used earlier on and we are.
Speaker Change: We are disappointed with where we sit today on implants that is for sure.
Speaker Change: Absolutely.
Speaker Change: And then just last one from me I think at the end.
Speaker Change: Necessarily that wasn't mentioned about $30 million benefit.
Speaker Change: Most profit benefit from SKU optimization efforts through 2020 seems like SKU optimization efforts are progressing well.
Speaker Change: Could you just give us an update on where that stands in terms of the gross profit benefit.
Speaker Change: Is that something that's more of a 2025 and that our 2026. Thank you.
Speaker Change: Yes, so I think I'll just nothing we just noted that.
Speaker Change: For all intents and purposes, all our all of our transformational efforts, including SKU optimization are on track.
Speaker Change: And that will provide a more robust update when we do year end earnings.
Speaker Change: Later at late February so that will be our thoughts on that.
Speaker Change: Yes.
Speaker Change: There are no alarms ringing in respect of Skus right now.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Im showing no further questions at this time I would now like to turn the conference back to our CEO Simon Campion for closing remarks.
Simon Campion: Thank you operator.
Simon Campion: So in closing today I want to express my Thanks to you all for joining us and to the entire dense play soil and the team for their commitment to our customers and our ongoing transformation of our company.
Speaker Change: While we know we have lots more to do.
Speaker Change: We are making progress we are bringing innovation to the marketplace and we are creating a more disciplined accountable and dense play sirona first culture that will benefit all stakeholders over the long term.
Speaker Change: Thank you for your time today.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.