Q1 2025 Dentsply Sirona Inc Earnings Call
Speaker Change: Welcome to the Q1 2025 Dentsply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-answer session. To ask a question during the session, you will need to press star-1-1 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Andrea Daley, Vice President of Investor Relations. Please go ahead.
Andrea Daley: Thank you, operator, and good morning, everyone. Welcome to the Dentsply Sirona first quarter, 2025 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, and Rich Rosen's wife, Executive Vice President, 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 investor section of our website at www.dentsplysirona.com
Speaker Change: Before we begin, please take a moment to read the forward-looking statements in our earnings press release Thank you.
Speaker Change: During today's call, we may make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties.
Speaker Change: are most recently filed form 10k and any updating information in subsequent FTC filings lists some of the most important risk factors that could cause actual results the differ from our prediction.
Speaker Change: 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 business's financial performance . . .
Speaker Change: Enable the comparison of financial results between periods where certain items may very independently of business performance and enhance transparency regarding key metrics utilized by management in operating our business.
Speaker Change: Please refer to our press release for the reconciliation between gap and non-GAAP result.
Simon Campion: Comparison provided are to the prior year quarter unless otherwise noted. A webcast replay of today's call will be available on the investor 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 our Q1 2025 turning score.
Speaker Change: Today, I'll cover our full agenda as Herman Cueto has completed his interim CFO assignment with us.
Speaker Change: My prepared remarks will include an overview of our recent performance, our Q1 financial results, and an update on our 2025 outlook.
I'll then finish with our foundational initiative and strategy.
Speaker Change: Before we get started, I want to provide you with some thoughts and comments on the global trade situation and how we're viewing it relative to our business.
Speaker Change: As a multinational company operating in over 100 countries with a global supply chain, the current and potential tariffs create headwinds and risks in our business.
Speaker Change: We are confident that the work we have done to strengthen our foundation improves our ability to navigate these potential challenges.
Speaker Change: As the situation began to evolve, we developed plans to mitigate potential impacts to our business. We continue to monitor the changing landscape and our poise to pivot as necessary.
So let's start with some key points on slide three [inaudible]
Speaker Change: In the first quarter, we continue to make progress towards driving reliable and sustainable performance from Dentsply Sirona .
That's wrong through your few highlights.
Speaker Change: In Q1, we delivered organic growth in two of our three global regions and continued to improve operational efficiency
Speaker Change: Organic sales exceeded our expectations and viled down 4.4%, it did include a negative 4% bike impact
Speaker Change: Imaging performed well in the quarter with our heightened focus resulting in growth across all regions
Speaker Change: Wealthback Healthcare delivered another quarter of growth across all geographies fueled by new product introductions and solid execution.
Speaker Change: Europe also delivered growth for the second quarter in a row while Germany our largest market in Europe and our second largest market globally delivered a third consecutive quarter of growth [inaudible]
Speaker Change: We were pleased to see a bit of margin expansion and EPS growth in the quarter, reflecting our transformation of savings, improving operational efficiency, and bite.
Speaker Change: We continue to drive internal financial discipline, but also seeking to improve our commercial excellence, including customer experience, a work in progress.
Speaker Change: Our approach for IDS this year serves as a great example of this.
Speaker Change: While we spent 60% less than we did in 2023, our sales results exceeded those in 2023, a testament to the innovation that we continue to deliver, focused on enabling great clinical outcomes, improving efficiency for our customers, and enhancing treatment acceptance rates.
Speaker Change: Our commitment to customers and investors remains on delivering meaningful progress through thoughtful transformation, customer-centric product innovation, and disciplined execution.
Speaker Change: During the first two weeks of April , we once again conducted our quarterly customer survey with over 1100 respondents.
Speaker Change: As plans, we also began to leverage our virtual sales team to gather customer input reaching nearly 1000 additional respondents.
Speaker Change: Results indicate that our major markets remain relatively unchanged from a patient volume and procedure utilization standpoint.
Speaker Change: Not surprisingly, we saw a drop in US census sentiment with about half expressing concern or expecting impact in the rapidly changing economic conditions and the potential implications on patient footfall and treatment acceptance rates.
Speaker Change: Despite this, results indicated dentists remain strongly interested in driving efficiencies through workflow improvement. In Japan, dentists also see increased usage of digital equipment as a top opportunity.
Speaker Change: This feedback while in a period of dental market uncertainty demonstrated clear alignment to our strategy, enabling efficient, effective, and profitable dentistry by providing tangible, meaningful, and measurable outcomes for our customers through product innovation and connected technology.
Speaker Change: For 2025, we are maintaining our outlook for organic sales and adjusted EPS while increasing reported sales for foreign currency translation changes.
This outlook does reflect the current tariffs.
Speaker Change: Despite the increase on certainty in the macroeconomic environment, we delivered Cueto on the head of our expectations and remain confident in executing against our commitments [inaudible]
Speaker Change: We will cover more details on Outlook a little bit later.
Speaker Change: Given the current environment, we are also taking a proactive and disciplined approach to managing our balance sheet, where actions taken in the quarter to strengthen our position [inaudible]
Speaker Change: Now, before we discuss financial results in more detail, I'd like to share some recent business highlights on slide four .
Speaker Change: Starting with innovation. In March, we took the opportunity at IDS to invite our customers to experience the power of connected dentistry.
Speaker Change: 40 years ago this year, Dentsply Sirona propels dentistry into a new era with the introduction of steric
Speaker Change: Those dentists who have embraced this transformational technology deliver exceptional care for their patients at the chair side while growing their businesses meaningfully.
Speaker Change: With the introduction of our DSCOR ecosystem in 2022, we initiated the transition into the next chapter, digitally connected to Dentsply.
Speaker Change: As we continue to expand this functionality and connectivity with our CAD-CAM and imaging platforms, we believe our technology can further expand the penetration of digital dentistry.
Speaker Change: We see evidence of this with the platform continuing to gain traction. It has now surpassed 42,000 unique users, 50,000 connected devices, and we are processing over 100,000 lab orders each month.
Speaker Change: We continue to add new capability to the platform, and in Q1 we added DS Core Diagnos, complementing our 3D imaging solutions.
Speaker Change: This new capability brings the flexibility and benefits of the cloud and the at-core workflow to CVCT and integrates an AI-powered 3D rendering tool for better patient communication.
Speaker Change: This is currently available in Europe and is pending 510K clearance in the US.
We also enhance Prime Scan 2 with new functionality and accessories.
Speaker Change: functionality enhancements include a 50% reduction in internet speed requirements, 90% faster sure small simulations and integrated carries detection that is now available in certain markets and is also pending FDA clearance in the US.
Speaker Change: We believe these additions will facilitate an improved scanning experience and increased patient engagement.
Speaker Change: This platform embodies our clear intention to enable seamless connectivity, faster workflows, and smarter integrations.
Speaker Change: This leads to our customers experiencing added flexibility, improved efficiency, and with that the opportunity to improve treatment acceptance rates, all of which drives practice growth. Our NPD discipline and pace is also evident in our approach to seeking regulatory clearances. Our NPD discipline and pace is also evident in our approach to seeking
Speaker Change: Already this year, we have received three 510K clearances with five additional filed and pending. Moving to customer engagement and experience.
Speaker Change: Thank you. One, we launched revamped company and share small website to improve customer interactions.
Speaker Change: The redesigned Dentsply Sirona.com improves navigation, search functionality and usability, making it easier for users to find information to contact us and to purchase products.
Speaker Change: The new suresmall.com is designed to complement our company website, creating a cohesive and integrated experience between the two sites for our customers.
Speaker Change: Additionally, and in parallel, we have also been hard at work designing a new e-commerce platform to include self-service capabilities, simplified returns, leverage AI to drive customer engagement, and optimize the re-order process.
Speaker Change: Our goal, ultimately, is to make our digital platform simple, intuitive and easy to use.
Speaker Change: I've spoken in a variety of our investor engagements, including these running schools about the robustness of our portfolio.
Speaker Change: While we continue to work earnestly at improving this portfolio for the reasons we've just discussed, we also recognize that our customers experience pain points when they engage with Dance by Sorona.
Speaker Change: To ensure we capture these, we have been closely engaging with dozens of customers over the past couple of months
Speaker Change: We also recently kicked off an in-depth assessment of our US customer base to better understand how and where we need to improve [inaudible]
Speaker Change: We expect this work to provide key insights that we can use to develop the next phase of our action plans, focus on improving our interactions and delivering what customers need and care about most.
Speaker Change: As with everything we do, we are taking a thought-called data-driven and disciplined approach to make well-informed customer-centric decisions.
Now let's wrap up our highlights with operational updates.
Speaker Change: In March, we announced the appointment of David Ferguson as SVP of our global business Management. Managing our dental product portfolio.
Speaker Change: We continue to make progress on European modernization with two additional phases in the US rolled out.
Both appointments have gone as expected with minimal disruption
Speaker Change: We have leveraged learnings from each range to drive continuous improvement into subsequent deployments.
Speaker Change: Lastly, and importantly, we are delivering on plans to optimize our global supply chain.
Speaker Change: This quarter, we completed the closure of one of the manufacturing sites we announced last year bringing in the total number of manufacturing and distribution sites now closed to 10 since we started this work.
Speaker Change: Our supply chain team continued to make robust progress on optimizing our network, improving efficiency, driving our costs and enabling a better customer experience.
Let's move to Q1 results on slide 5.
Speaker Change: Our first quarter revenue was $879 million, representing a decline of 7.7% of the prior year quarter.
Speaker Change: On an organic basis, sales declined 4.4%, as far in currency negatively impacted sales by approximately 330 basis points.
Speaker Change: Vice had a negative 4% impact, representing most of the decline.
Speaker Change: On a constant currency basis, still highlights in the quarter included double-digit growth three equipment and instruments, sure small performance in Europe and rest of the world, and continued momentum for well-spec healthcare.
These improvements were offset by the clients in CADCAM and IPS.
Speaker Change: Despite lower sales, adjusted gross margin was roughly flat. Adjusted EBITDA margins expanded 220 basis points, benefiting from lower operating expenses and reflecting our transformational savings, internal financial discipline, and an $8 million bite customer refund adjustment in the quarter. [inaudible]
Speaker Change: Adjusted EPS in the quarter was 43 cents, up 3.7% from prior year largely due to higher adjusted the bill emergent and the lower sheer count, partially offset by a higher tax rate.
Speaker Change: In the first quarter, we generated $7 million of operating cash flow compared to $25 million in the prior year quarter The year over year decline is primarily attributable to timing of cash collections and a higher build of inventory
Speaker Change: We finished the quarter with cash and cash equivalence of $398 million on March 31st.
Speaker Change: Our Q1 net debt to the bidder ratio was 3x, consistent with the power quarter, and in Q1 we entered into a bridge alone agreement to pay down short-term debt.
Speaker Change: Let's now turn to first quarter segment performance on slide six.
Speaker Change: Starting with the essential dental solution segment, which includes endo-resto and preventive products, organic sales increase 0.4% due to growth in Europe and rest of the world, partially offset by lower volumes in the US.
Speaker Change: EDS performance in the quarter reflected stable patient traffic which I spoke to earlier when sharing our customer survey results.
Speaker Change: Shifting to the orthodontical and implant solution segments, organic sale declined 17.7% with a net negative
Speaker Change: Sure smiled the client slightly in the corner due to the prior year-a-loss of a DSO customer in the US, partially offset by double-digit growth in both Europe and rest of world.
Speaker Change: We continue to see aligners as a strategic growth opportunity for us globally
Speaker Change: Implants and prosthetics decline mid-single digits in the quarter driven by lower lab volumes
Speaker Change: Still the premium implants grew nominally, as are EV family of implants and prosthetic solutions outpaced the clients and legacy brands.
Speaker Change: Rapping off our denser performance, CTS are connected technology solution segments, so organic sales declined 0.5% versus the prior quarter largely due to declines in CADCAM predominantly in the U.S.
Speaker Change: Grossed Equipment and Instruments offset the majority of this decline, with imaging performance a dry spot posting gross across all three regions, as we've benefited from an easier comp with the prior year while navigating a softer retail environment.
Speaker Change: Our treatment centers business also contributed to growth as a result of a one-time delivery of equipment for a large new institutional customer in EMEA.
Speaker Change: Moving to well-spec healthcare, organic sales grew 8% with sales growth across all three regions as we continue to benefit from new product launches and execution.
Speaker Change: As a reminder, in Q2 of this year, we will have a more difficult come due to a distributor we onboarded in the prior year period.
Speaker Change: We continue to expect this business to deliver a mid-single digit growth for the full year.
Speaker Change: Now let's turn to slide seven to discuss first quarter financial performance by region.
Speaker Change: U.S. Organic sales declined 14.9%, primarily due to the negative 9.8% impact from bites.
Speaker Change: Catcam and IPS also declined in the quarter, which were partially off-step by growth and well-speced and imaging.
Speaker Change: Changes in distributor inventory for CADCAM contributed to the year over year decline
Speaker Change: Distributor Inventory Levels in the US increased sequentially by approximately 4 million compared to an approximately 9 million dollar of sequential increase in the prior year quarter.
Speaker Change: Meanwhile, US imaging growth benefited from changes in distributor inventory levels.
Speaker Change: Distributor Inventory in the US increased sequentially by approximately six million dollars compared to an approximately seven million dollar decrease in the prior year quarter
Speaker Change: We ended Q1 at about historical averages for CAD-TEM and imaging distributor inventory levels.
Speaker Change: Turning to Europe , organic sales increased 1.1% driven by performance in Germany, equipment and instruments, sheer smile and well-spaced.
Speaker Change: Germany, our largest market in the region, posted another quarter of growth driven primarily by CTS. While we remain cautious on the German economy, we have seen encouraging signs of a rebound, particularly in equipment.
Speaker Change: Sure smiled posted double digit growth as it continues to show positive momentum in the region.
Speaker Change: The organic sales growth for Europe was partially offset by declines in CADCAM and IPS.
Speaker Change: Rest of World Organic Sailors grew 3.1% with growth in imaging, well-spec, and implants in China as the primary drivers, partially offset by a decline in CADCAM.
Speaker Change: With that, let's move to slide eight to discuss our updated outlook for 2025.
Speaker Change: We are maintaining our 2025 outlook for organic sales and just the EPS.
Speaker Change: Organic sales are expected to be down two to four percent with a two percent bite impact on the full year
Speaker Change: We are revising our outlook for reported sales to reflect the change in foreign currency rates as of the end of Q1 and we now expect reported sales to be in the range of 3.6 billion to 3.7 billion above our previous range of 3.5 billion to 3.6 billion.
Speaker Change: Moving to profitability, we are increasing our outlook for adjusted EBITDA margin to greater than 19% attributable to the positive impact of FX rates throwing through the PML. [inaudible]
Speaker Change: Adjusted EPS remains unchanged from our prior guidance in the range of $1.80 to $2, which reflects the current state on tariffs and trade policy.
Speaker Change: Let me provide some color on our expectations for the second quarter.
Speaker Change: We expect second quarter organic sales to decline mid-single digits versus the prior year period, primarily as a result of the negative sales impact from bite.
Speaker Change: We do not expect an impact from foreign currency based on rates at the end of the quarter.
Speaker Change: Sequentially, reported sales are expected to increase in the second quarter based on normal seasonality and the positive impact from sales associates with IDS.
Speaker Change: We anticipate second quarter adjusted EPS will be up year-over-year, primarily due to adjusted EBITDA margin expansion, offset by a higher tax rate.
Now, let's move to a strategic update on slide 9
Speaker Change: As we continue on our path to improve all aspects of our company [inaudible]
We've also adapted our approach along the way as needed.
Speaker Change: We've shared our formula for growth, focused on customer and return centric innovation, clinical education and commercial excellence.
Speaker Change: We know that growth won't come by chance, it will come from the choices we make, the focus we bring, and the value we create and deliver.
Speaker Change: Our focus on growth must also be accompanied by a scalable and lean cost structure.
Speaker Change: For 2025, we've embarked on the next set of strategic actions.
Speaker Change: We deliver best-in-cloud innovation and believe we are uniquely positioned to shape connected dentistry across clinical procedures.
Speaker Change: We continue to deepen our customer focus and clarify our value proposition, which, as I've noted, centers on enabling great clinical outcomes, improving workflow efficiency and enhancing treatments acceptance rates
Speaker Change: We are also evolving the nature of the conversations we have with our customers to be value oriented.
Speaker Change: Our innovation pipeline is healthy with the projected value of the NPD portfolio more than doubling over the last 12 months.
Speaker Change: Should the benefits of cloud-based software and solutions were bringing new capabilities and functionality to the market at an accelerated pace?
Speaker Change: Historically, Sarah Xophrer updates could take up to two years to complete. We are now leveraging the benefits of our cloud-based solutions to develop software updates on a more frequent basis as often as quarterly and releasing those updates instantaneously.
Speaker Change: and we're doing so more efficiently by increasing the leveraging AI tools alongside our software development teams supporting code generation and automating test creation.
Speaker Change: I've already spoken about our most recent enhancements for both prime scan 2 and DS core. With each new release we see increased adoption and stickiness as we deepen the connectivity of our digital ecosystem.
Speaker Change: We've had some feedback from our customers on opportunities to further enhance the experience with Prime Scan 2, and we have rapidly implemented changes, such as improved compression and simulation speed, and we'll continue to adapt the platform to meet customer needs.
Speaker Change: We are recognized as a leader in clinical education and we continue to fulfill our commitment in this area [inaudible]
Speaker Change: We've already kicked off DS World 2025 events with our first held in Dubai. This was the third year we've hosted the event in this market and we saw more than a 10% increase in participation as well as higher sales compared to last year.
Speaker Change: We're also broadening and deepening our customer reach and enhancing our customer experience through our virtual sales team.
Speaker Change: A team focused on the US market and based in our Charlotte headquarters
Speaker Change: This team now makes over 2,000 customer calls today, driving sales, providing quality leads to our field-based sales team and gathering customer insights.
Speaker Change: as we've spoken about before, Rachel Sales pays an important role in creating our own demand.
Speaker Change: This team has now reached out to over 21,000 accounts, approaching $1 million in revenue and generating several million dollars in lead.
Speaker Change: We continue to shape the organization and deliver on our initiatives to strengthen the company's foundation.
Speaker Change: Our ERP modernization continues with more deployments planned later this year, including the remaining US deployments
Speaker Change: We expect to begin additional European launches later in 2025 with completion expected in 2026.
Speaker Change: We also continue to deliver on our supply chain transformation and SKU optimization work.
Speaker Change: Now I'll wrap up on slide 10 with a few summary remarks.
Speaker Change: Q1 results exceeded our expectations. That said, we are not satisfied and rest assured we will keep driving towards reliable, sustainable performance.
Speaker Change: We're maintaining our 2025 outblood for organic sales and adjusted EPS.
Speaker Change: Our financial discipline and operational efficiency are improving, which will benefit us as we navigate through an increasingly uncertain external environment. We are executing with intention, reshaping the organization and driving efficiencies.
Speaker Change: We are also committed to enhancing the customer experience and investing for the future.
and with that, I will open it up for questions.
Speaker Change: Thank you. At this time, we'll conduct a question or session. As a reminder to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again.
Speaker Change: Please limit to only one question and one follow-up question. Stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Elizabeth Anderson of Evercore ISI. Your line is now open.
Speaker Change: Hi, guys. Good morning, and thanks so much for the question. One, I was hoping that you could expand a little bit more on the tariff impact. You know, you said it was incorporated in your guidance, and I appreciate that that's super helpful, and imagine that has some impact, but I was just wondering if you could help us sort of spell out that in a bit more detail.
Good morning, Elizabeth Simon here.
So, as you noted, we have-
Speaker Change: We have factored the tariffs into the current current guidance with where tariffs are today.
It is, we have contemplated approximately 10 cents.
Speaker Change: of impact today. And we have we have we're covering that throughout the year.
So, on an annual live basis. [inaudible]
Speaker Change: We think the tariff exposure as of today is about $50 million. As you know, we have a large manufacturing footprint outside of the US and about half of our US sales are. We have a large manufacturing footprint outside of the US and about $50 million.
Speaker Change: are generated from goods that are manufactured outside of the U.S.
Speaker Change: Anything else that comes in, we've got some options for how to deal with those.
Speaker Change: But we won't provide any color on what those what we think that is.
Speaker Change: right now, and if there is any retaliatory impacts from Europe , but we have we have we have plans in place to to use with any subsequent subsequent issues.
Speaker Change: Got it. No, that's super helpful. Thank you. Appreciate the additional color. And then one another question. Could you update us on where we are with the CFO search? I know Herman was obviously temporary in an interim, so just wanted to get your latest thoughts there as well. [inaudible]
Speaker Change: Yeah, so we're making good progress on that, Elizabeth, we have a number of candidates and I would say in the late phases of this process so we are hopeful that we're going to get home on that in the not too distant future.
Great, thank you so much. Thank you, Elizabeth.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from Michael Cherny of Learing Partners. Your line is now open.
Michael Cherney: Good morning and thanks for taking the question. Maybe if I can just dive in a little bit on the orthodontic side a little further, you know obviously the bite roll off continues but as you go through that process
Michael Cherney: Can you give us a little more sense on what you're here from your customer base, kind of how the, the first mile pitch has gone beyond here and I'm sorry if I missed the time but any differences in your view on the eventual potential expansion beyond the current GP market.
Yeah, the morning Michael.
Speaker Change: So, let me deal with the second part first. As you know, we redeployed some of our bike resources into different parts of our business. And they have contributed to the new Dentsply Sirona.com and you're sure small.com websites are also working on e-commerce.
In parallel to all of that. [inaudible]
the software and R&D teams.
Speaker Change: At the moment collecting inputs from customer about what customers about what the new user interface.
Speaker Change: needs to look like, and so we're making good progress on that, and we expect...
Speaker Change: To be in a position to improve that by by the end of the year or maybe into early next year [inaudible]
It's clear.
It's clear to us that...
Speaker Change: We do need to re-engage with the orthodontist community. The vast majority of the volume is in that area.
Speaker Change: We think we have a meaningful solution for them with a mature smile and all the benefits that we think customers gain from that customer's and patients [inaudible]
Speaker Change: But we do need to improve the user experience because it's not just about...
Speaker Change: The orthodontist, him or herself, it's about their staff members having to navigate a new software and the challenges that that closes. So we need to make that more seamless. So I would say we will provide more information on our intentions over the next quarter or two respect to the orthodontist community. Thank you.
Perfect, that's it for you for now. Thank you
Thank you. One moment for our next question.
Speaker Change: The next question comes from Kevin Caliendo of UBS, your lines out open.
Speaker Change: Thank you very much. This is Dylan Finley on for Kevin Caliendo. Starting out first, you know, some impressive execution on on the event margin. In particular, it looks like OIS had some favorability.
Speaker Change: and about a 17% EBIT margin. First of all, is this a reasonable run rate? Just start with looking at the rest of the year. Any context behind that number?
Thank you.
Speaker Change: Yeah, good morning, Dylan. Let me be a bit more general than just OIS. I think we saw an improvement in Q1 for sure.
Speaker Change: I know that when we release guidance back in February , we had some spotty margin profile throughout the year. So we're pleased now that we've managed to smooth that out. I think you should consider where we landed for Q1 as indicative of where we land for the rest of the year. [inaudible]
Speaker Change: But for sure, across all of our businesses, we're focused on a driving growth, but also being very judicious with our SGNA, and that's all helping throughout the P&O.
Speaker Change: A very helpful context thanks. And then just, we'll let's follow up when I look at EPS, you know, your guidance for QQ being, you know, up on a year-over-year basis,
Speaker Change: for in the first half of the year, typically, you know, seasonally, we expect to see 4Q, equipment really drives, you know, the bottom line result there, you know, so...
Speaker Change: Context, I guess, perhaps behind why QQ might be a bit soft, or are you conservative? Are there implications from a tariff perspective, anything on that? [inaudible]
Speaker Change: So, the tariff, from a tariff perspective, I would say there's more in the tariff towards the back end of the year.
Speaker Change: I would say Cueto is normal seasonality that we see as well, Dylan. So that's about as much color as I can give you on that.
Speaker Change: You know, we're in the survey that we've done, you know, footfall is still still there.
Speaker Change: Stable within your preventative and rest though, but there is some slight negativity in the market around tariffs. So let's see, let's see how that shakes out and people will postpone stuff but yeah, normally generally though it's just normal seasonality and a back end waiting of the of the tariff impact. [inaudible]
Thank you.
Thank you.
. . . . .
. .
Speaker Change: Friend, we're having some challenges hearing you clearly. If you can please.
Ask for the next question.
Speaker Change: David, it looks like you're next in two. Can you hear us? And do you want to go ahead with your question?
David Ferguson: Yeah, great. Good morning. Hopefully you can hear me okay. So maybe I'll start on CTS. So, you know, the mix there was, you know, interesting to see. So in equipment, you know, growth obviously accelerated wanted to ask how much of that was driven by the comp versus any improvement in kind of underlying demand. And.
Speaker Change: And then on the CAD campside, you know, what was the impact of dealer inventory and what are you seeing in iOS price and volumes?
Speaker Change: Yeah, good morning. Good morning, David. Let me let me let me start with the with the second part first
Speaker Change: and the Inventory. I think as we know that in the prepared remarks.
Speaker Change: Inventory dropped on the CAD CAM side, but increased on the imaging side. So I think net net it's probably it's probably a reasonable wash there between both. We are at above your normal historical levels on Inventory across the board here with our with our main with our main partners so no no significant impact, I would say there. [inaudible]
Speaker Change: on the pricing on the scanners. We have not seen that much of a notable change in the quarter. I think
NetNet for our CADCAM business.
Speaker Change: There was about a $1 million degradation from prior year, so not that significant. And yeah, that's that's about it on the on the on the front piece. Yeah, did you have one more part to your question there David? Yeah, David.
David Ferguson: Um, yeah, I mean, I think that was about it, but my second question, maybe I'll ask on implants. Um, so the US on the US side, it looks like it was down in the quarter, right, but are you seeing? [inaudible]
David Ferguson: You know, any progress on that front and then premium grew nominally. I think you sit in the script. Any color around what it did in the US specifically. Thanks so much for taking my questions.
David Ferguson: Yeah, Premier Grunomaly, Grunomaly, you know, the degradation that we saw when some of our legacy brands was offset by growth in the EV family, so that was good to see.
David Ferguson: We've been out with customers a lot over the past several weeks.
David Ferguson: and the theme that continues to surface here is the importance of commercial teams and the relationship that the reps have from a clinical perspective and also from an organizational perspective with their implant customers.
David Ferguson: and it strikes us as if we were still in the rebuilding phase. That's what customers are saying to us that, you know, rap needs, you know, clinical siviness.
David Ferguson: and also to be very strong at building relationships which, as you know, takes some time [inaudible]
We have now completed the retraining of our sales reps.
on the implant side so that they're more clinically savvy.
David Ferguson: We are in the process, but actually in the building right now, of retraining our sales managers on what good sales management looks like. So again, we hit it.
David Ferguson: It's a disappointing quarter. There's no way to say it any other way, but on implants.
but we continue to...
David Ferguson: trying to improve our performance there and improve the quality of our commercial team and improve relationships with these customers so it is an area of intense focus for us as it has been for two years and it's it's
David Ferguson: Disappointing that we have not made more than we had expected .
Great. Thanks so much for taking my questions.
Speaker Change: Thank you. Our next question comes from Vic Chopra of Wells Fargo. Your line is now open.
Hi, good morning, this is Simmer and on-perfect .
Speaker Change: What mitigation strategies do you have in place? And is that assumed in the 10 cents?
Speaker Change: Yeah, good morning. So there are no mitigation strategies contemplated in the in the 10 cents that we're offsetting at this point in time. And then the considerations for what we
Speaker Change: What we could do in the future, you know, in some areas we have, we have, you know, not quite dual manufacturing capability, but let's say we have one type of file that's made, an endo file that's made in Switzerland, one type that's made in the US.
Speaker Change: So right now we are we are we are trying to move you know a a US customer to a US manufactured file for example so that work is underway right now we are also
Speaker Change: Actually, right now we are building some strategic stock in certain areas and we're going to import that into the US.
to prepare us for what might come.
Speaker Change: in the future. We also think we have some some functionality to to redistribute stuff that we have in some of our DCs around the world into US.
based distribution sites, which would help. [inaudible]
Speaker Change: And then obviously we will continue to be extraordinarily prudent with our expenses moving forward. And then the lever that I'm sure people would be most reluctant to pull is some strategic price increases. I think our customers are already.
Speaker Change: Okay, Great and maybe just for my follow up could you provide any timing updates or visibility on the resolution of the German tax situation.
Speaker Change: Sort of you know what is the current status of working with the authorities in Germany and responding to their request yep.
Speaker Change: Six nine including ours the best the best answer I can give you is we're continuing to work with them. We're continuing to meet with them. We have we've provided a a lot of a lot of files work cooperating with them, but therefore, we don't know about when there's a likely.
Speaker Change: Resolution, but a resolution is likely to be some time out and the magnitude of that resolution is at this point impossible to define.
Speaker Change: We remain as I've noted before though just if I can just finish in that point, we remain very confident in our position if if any if any routing goes against it we will appeal it and we will we will go we will go until the end.
Speaker Change: Advice when the merger happened we continue to get advice that this is standard you as recently as Q1 and so our our position is unchanged that there's there's nothing to see here.
Speaker Change: Okay, great. Thank you you're welcome.
Speaker Change: Thank you. Our next question comes from John Block of Stifle. Your line is now open.
Speaker Change: Great. Thanks, and good morning, So maybe I'll just try to wrap up some questions. In one if you can maybe provide a bit more color just on current trends simply put there is really big one Q upside, but no change to the full year guide and I get it there.
Speaker Change: Which we touched on a bit but you know is it just when we look back it was sort of a good amount of conservatism to the one Q guy or is there anything to call out that you're seeing as you look forward by product line or by region and then the ask the follow up.
Speaker Change: You know I think we had as we call out in the in the script. We had we had a couple of one times in in Q1, some timing things there, but they I think they only contributed let's say normally to our.
Speaker Change: I think we're being as we were in with the original guide I, just think we're being a little a little prudent here with with respect to the outlook for dental yeah, nothing from our survey and as I noted we have we've over 2000 respondents in in total.
Speaker Change: Does materially change with respect to to foothold in dental practices nothing that we see has has dramatically changed certainly in North America with respect to customer sentiment around purchases, we're really pleased to see.
Speaker Change: In Germany at least in our performance, but I think the the interesting thing from the data that we've that we've gathered John is you know the the data generation straddled Liberation day, and we saw a drop in sentiment pres.
Speaker Change: Operation Day in general and it didn't move from from concerns to very worried it moved from not concerns to somewhat concerned. So when you when you net it out it was it was just a slight degradation, but I think we're just there.
Speaker Change: In in the in the macro economy and dental in particular, so I would I would classify it as as prudent and let's see let's see where things go from from here on in.
Speaker Change: Got it that was great that was very helpful and I don't think anyone argues with being prudent I think just to shift gears for the second question sure Smile was down I think the words were slightly year over year and I get it they're still that drag from the D. S O customer but.
Speaker Change: S in ortho and you feel like the software is where you want it to be what's the strategy on how to compete or how to win and I just ask that because when I look at that landscape you've got a player from China. That's been very aggressive on price you have another player that's able to.
Speaker Change: Franchise, and then you have sort of the the big incumbent if you would so maybe just talk to us a little bit on where you see the opportunity to go into a market like that and compete and win again when the software is where you wanted to be thank you yeah.
Speaker Change: Yep. Thanks for the question John I think I think this I think software is one area that we can that we can leverage you know DS core and our scanner are pretty powerful combination that we have so I think that's that's one level that will interest people for sure I think the second one here.
Speaker Change: Is that you you mentioned price I think our price position has been pretty competitive with respect to with respect to our relia and in number three as we as we think about and as we as we keep as we keep.
Speaker Change: From from customers of all of all types, whether they're G p's or endose or or Authos. They want they want the efficient procedures and they want they want the patient to to get in their chair and they want the patient to accept their treatment.
Speaker Change: So we do know and we've spoken about it before that we have fewer attachments with our device, which makes it more efficient for the for the customer we have fewer refinements. So the patient is isn't coming back and so when you combine all those things together I think we.
Speaker Change: Proposition that will will resonate with with the ortho Dante community No of course, the competition in that space, we're not going to take it lying down I would suggest that there's lots of room for four competition in that space the.
Speaker Change: Minor market is arguably underpenetrated and you think of the total population and we do have some unique opportunities with robotic wires and with our advanced shore Smile software as well. So we are we are not being there's no.
Speaker Change: Sales team or or add to our sales team and we have to really develop a compelling value proposition to shift customers from a competitor into into into our business I guess, the the final piece I would say and we share this data.
Speaker Change: Yeah, we did a a a pretty robust survey last leg last summer I think it was about 250 orthodontists and they do have multiple brands on their shelf shelves that they can choose from and you know, we just need to move our brand.
Speaker Change: Grab some more of that it's 80% of the volume is with the ortho. We we I'm sure. We can continue to grow in the you know mid single double digit growth area with the G p's, but the volumes in the ortho and so if we wanna be.
Speaker Change: [noise] understood. Thank you.
Speaker Change: [noise]. Thank you. Our next question comes from Jeff Johnson of Baird. Your line is now open.
Jeff Johnson: Thank you good morning, Simon you know I think we're all learning here through this earnings season on the questions to ask about tariffs and all that so maybe if I could ask just a couple more clarifying I don't want to beat it a dead horse here, but the 50 million annualized as you're talking about.
Jeff Johnson: The 10 cents E. T. S impact is I do the math it seems like the it's about 25 million that is layering in this year to get down to that 10 cents 25 million. This year to go up to the 50 million annual.
Speaker Change: Do you have much exposure of products made in the U S sold in China, or China made products sold in the U S. Vice versa, just or is most of it Europe based thank you.
Speaker Change: So we're expected the last part we have nominal exposure very nominal exposure to to to China with manufacturing there, but it's for China, we left than 5% of our materials from China. So so very very.
Speaker Change: Sure, that's stockfield, where that's product swap outs or whatever that's more cost synergies for us or in in certain cases in certain cases price increases in in strategic areas. So we have we have not we have not contemplated that.
Speaker Change: And you know if if anything were to go. It is it is it just contemplate the 10% today if the liberation day numbers come out then we'll have to we'll have to do further work to to decide what we would do there, but I think you.
Speaker Change: Inflation of of that we have begun the strategic stock bills. We are looking at relocating product from dc's around the world into North American Cc's, so that any impact that we that we would see from you know a liberation day 2.0.
Speaker Change: Would be would be offset by product already being in country. Alright. That's helpful. Thank you and then just a cash flow question. If I could I know you don't guide to cash flow in that upper hundred 50 to 180 to 200 million do.
Speaker Change: Free cash flow kind of down in that load of mid hundred million dollars level over the last couple of years, you know should we expect capex to come down at all this year free cash flow to go up and just on the short term funding that you talked about you know seems like some high interest rate on that or.
Speaker Change: Say to be fair. So just wondering you know how are you feeling on cash is there any kind of cash issues, we need to be worrying about here in the short run. Thank you. So we respect to let me take the Capex piece first I think we're we're we're we're we're doing a lot of what shall we say one time.
Speaker Change: Longer longer term projects, such as ERP that we expect would begin to roll off we've been successful so far with with ERP with with respect to the launches where within a hairs breath of our original originally continue for ERP. So so we're pleased for that.
Speaker Change: That rolls off we should expect capex to to to improve and free cash flow to to to to improve we're expect to the financing. We're just being we're being prudent we we had an opportunity and we decided to we decided to take it.
Speaker Change: Three there are there are no other issues that that was that was put in place to to address.
Speaker Change: Oh, it's it's it was just it was just to to help us out to with with short term short term debt gives us some flexibility and you'll just give them. The current environment. We thought it was prudent to to be prudent.
Speaker Change: Yep fair enough. Thank you.
Speaker Change: Thank you. Our next question comes from Jason Bernard of Piper Sandler Your line is now open.
Speaker Change: [noise] good morning, everyone. A follow up first on John blocks first question just to see if we can put an even finer point on on the U S market. Simon you mentioned, some maybe some more cautious commentary on U S. Denis sentiment from your quarterly survey I'm I'm trying to process that.
Speaker Change: Real time that the patient level and also at the Doctor level are you observing any patient reticins in moving forward on treatment particular in areas like Orthore implants, and then our doctors, putting a pause even a temporary pause on equipment purchase.
Speaker Change: It's an indicator of mood and concern rather than anything that's yet materializing in the end market. Good morning, Jason So I would say the third the survey both surveys that we've done.
Speaker Change: In terms of footfall no no great difference in the U S. In terms of intent to purchase no great difference either to be fair in the U S and over the past a couple of weeks I've been out with a visit about 70.
Speaker Change: Three or four weeks and I've asked them, but I've asked them. The same question I've asked him about footfall I've asked them about patient treatment acceptance rates I've asked them about their their intend to purchase and these 17 or so customers have said they have not seen a change in patient before patient.
Speaker Change: They have not seen a difference in in treatment acceptance rates for the procedures that they that they offer and if they needed to buy some equipment. They would they would buy it uhm yeah. We in the 1000 people that we serve that we service.
Speaker Change: With with our inside sales team. They the vast majority were just waiting to see what would happen with with tariffs. They hadn't indicated that they would trade down to lower price consumables or that they would.
Speaker Change: So I think there's I think the survey again over 2000 customers I think there's just not much change for now and it's no better or or no worse and I think given the given the situation that we're all hearing about I think we would we would.
Speaker Change: Okay, Alright, that's helpful. Maybe over to another important market for you. It's really good to see that Germany's been performing better some durability on on that that growth as we think about comps in that market. In particular, I think you have maybe one or two maybe.
Speaker Change: A really favorable comps, but I think it's just maybe a quarter or two how do you think that market performs once we anniversary those easier comps do you think that durability, you've seen the last few quarters does that sustain as we exit this year and look in and look beyond.
Speaker Change: We have probably one more quarter of of of favorable comp we've not posted three quarters in a row Jason of of of growth you again with respect to the survey that we have from from Germany.
Speaker Change: Stable steady as you go from Germany, we've definitely improved our our execution over there our our C. T. S business has done well in in Germany, particularly you know imaging and and an instruments.
Speaker Change: So you know to to answer your question, we have confidence moving forward in Germany, we have indeed in our in our top 11 top 11 countries. So growth in Q1 of in six of the 11 top.
Speaker Change: Alright, thank you.
Brandon Basquez: Your next question comes from the line of Brandon Basquez.
Brandon Basquez: Brandon go ahead. Your line is now open hi, everyone. Thanks for taking the question and squeezing me in here Simon maybe one for you first when you look at D. S. Core it started to get a pretty good scale here a lot of followers a lot of subscribers I mean can you talk about.
Brandon Basquez: Phone number of people on there what are some of the key operating metrics that you guys are looking at either from accounts that are on there when you compare it to the accounts not on Dscore. What gets you excited internally when you look at the metrics under the Dsore users.
Brandon Basquez: Good good morning, Brandon. We we are we're pleased with where we are as I noted in the prepared remarks 43000 users I think an important metric here is.
Brandon Basquez: Is the number of accounts a number of connected devices. So we're at in excess of 50000 50000 connected devices now and we're processing over 100000 orders every month through through our labs. So they're they're the type of important thing.
Brandon Basquez: We are looking at we're also seeing an increase in the number of accounts, who are paying for the DS core subscription I think the impact of that to be fair is nominal right now, but as we as we add more capability and functionality to it we expect that to grow it's definitely.
Brandon Basquez: In the marketplace people people people seem to to like it I was I actually got to experience. It myself last week when I visited visited my own dentist and it certainly changes the the experience of of sitting in a a dental chair we have we we have a lot of.
Brandon Basquez: We have increased the the speed of our sheer smile simulations by 90% when it's used with prime scan two and D. S. Core. So we're we're putting a lot of time and effort into insuring that this ecosystem is is driving our performance.
Speaker Change: M and the important thing for US is is to get these what should we say consumable workflows onto D. S. Core so it'll end O preventative aliners implants, where where the margins are attractive and where they are bread and offers and become the breadth.
Simon Campion: Okay, Thanks, and and Simon maybe as a follow up you I've always appreciated you guys take very measured and data driven approaches when you're kind of making commercial changes here, you're once again talking about doing some surveys to better understand what areas you can improve upon talk to us about what.
Simon Campion: Of the business, you're still running the surveys in what segments of the business that you're most acutely focused on that still need some commercial tweaks you think to turn around thanks, I think I I think your question.
Simon Campion: Is asking the service is is less about what we're doing is less about.
Simon Campion: Oh, let's say implants, or aligners or or capital equipment, it's more about when when when the customer or their office staff engage with dense price arona what challenges do they face do they face challenges with respect to invoicing or or billing or or the speed.
Simon Campion: Or e-commerce platform or our return policy. So that we can begin to smooth out the experience at the customer experience for our customers that is not related to the performance of our product because I think that that has been a challenge for us.
Speaker Change: Yeah, we spoken before about all the ERP systems that we had 14 of the 14 of them that has certainly made made things quite quite complex for customers. Our E. Commerce experience wasn't wasn't great compared to some of our competition. So the areas that we are focused on we are.
Speaker Change: That's that's part of the reason why we have been out in the field over the past couple of months meeting customers and and this survey will will take get feedback from in excess of 500 customers is our plan across the G P and specialist spaces, but also from.
Speaker Change: Other other staff members, who who engage with us as well so the office manager or the individual who places purchases or makes the phone calls two dennis by Sorona or to our distributor. So it's going to be a very comprehensive and that will form the backbone or the or the design put.
Speaker Change: For how we be continue to improve the company.
Speaker Change: Thank you and we have time for one more question. The next question comes from Erin Wright with Morgan Stanley Go ahead. Your line is open.
Erin Wright: Great. Thanks for squeezing me in on margins did you I guess accelerate any of the cost management kind of initiatives. There were there any costs that were pushed out at all I guess, how should we be thinking about that quarterly progression or any sort of anomalies that.
Erin Wright: Who was involved in terms of formulating the guidance, presumably you're you're taking full ownership of this guidance here. Thanks.
Erin Wright: Nothing has got pushed out to any other quarters. In fact, we see a very very modest sequential improvement as we roll through the year with respect to respect to Opex. So nothing has got pushed out and in relation to our guidance.
Erin Wright: Your Glan Coleman was he wasn't part of it Glenn was Glenn had left by that point in time, Glenn made a personal decision to leave Densiron Herman Cuto stepped in in November December and was here with us through the end of.
Erin Wright: Helped us put guidance together, along with our with the great finance team that we have so there's not much more to say in that and then respect to our our CFO search as I answered earlier today, we've got a number of great candidates in the final phases here and I'm hopeful.
Erin Wright: Thank you so much.
Simon Campion: Thank you. This does conclude the question and answer session I would now like to turn it back to Simon for closing remarks. Thank you closing I would like to recognize the entire dense place runa team for their commitment to our customers and the transformational journey that we are on together.
Simon Campion: We're getting key milestones, we continue to innovate in a in a very meaningful way launching new products and technology, we're taking consistent action to advance our plans and as you hopefully have seen we are continuing to mitigate risk as we.
External environment, we continue to be focused on what we can control maximizing the value that we can deliver for our customers, which we continue to believe intern will unlock the true potential of our company for all stakeholders and thank you for joining us today.
Simon Campion: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.