DENTSPLY SIRONA(XRAY) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Q1 2024 revenue was $953 million, a decline of 2.6% YoY, with organic sales down 1.9% [9] - Adjusted EPS was$ 0.42, an increase of nearly 8% YoY, in line with expectations despite softer sales [6] - EBITDA margins expanded by 30 basis points due to restructuring savings and net investment hedges [53] - Operating cash flow improved to $25 million compared to an outflow of$ 21 million in the prior year quarter [53] - Cash and cash equivalents stood at $291 million as of March 31, 2024, with a leverage ratio of 2.6x [53] Business Line Performance - **Connected Technology Solutions (CTS):** Organic sales declined 5.7%, driven by double-digit declines in imaging equipment, partially offset by high single-digit growth in CAD/CAM [55] - **Essential Dental Solutions (EDS):** Organic sales declined 5.5% due to a tough YoY comp, as Q1 2023 saw 11.5% growth [54] - **Orthodontic and Implant Solutions:** Organic sales grew 5.6%, with aligners up 14% and Byte growing 18% [54] - **Wellspect HealthCare:** Organic sales grew 5%, with mid-single-digit growth expected for the full year [55] Regional Performance - **US:** Organic sales grew 1.4%, driven by strong growth in aligners and CAD/CAM, partially offset by lower imaging equipment sales [56] - **Europe:** Organic sales declined 5.8%, with Germany down double digits due to prolonged recessionary trends [56] - **Rest of World:** Organic sales were flat, with significant growth in China offset by softer demand in Japan and Canada [56] Strategic Direction and Industry Competition - The company is focusing on innovation, with DS Core adoption rates increasing and new products like Axano Pure and Midwest Energo being launched [7] - The reintroduction of Orthophos SL in Europe aims to address competitive pressures in imaging equipment [7] - The company is investing in high-growth categories like orthodontics, implants, and continence care, with Byte Plus expanding commercially [28] - Sustainability remains a key focus, with Wellspect HealthCare achieving emission reduction targets validated by the Science Based Targets initiative [8] Management Commentary on Operating Environment and Future Outlook - Management noted macroeconomic challenges, particularly in Germany, impacting imaging equipment sales [4][6] - The company is maintaining its full-year outlook for organic sales and adjusted EPS but trending towards the low end of the ranges due to macro uncertainties [6] - Management expressed confidence in the long-term trajectory, citing a comprehensive portfolio and progress on strategic objectives [6] Other Important Information - The company plans to execute up to$ 150 million in share repurchases in Q2 2024 [6] - SKU rationalization efforts are underway, focusing on endo and resto portfolios, with benefits expected to accrue in 2025 and 2026 [76] Q&A Session Summary Question: Update on growth expectations for each business segment [31] - Answer: EDS expected to be flat for the full year, Ortho to grow over 20%, implants to grow low single digits, CTS to decline mid-single digits, and Wellspect to grow mid to high single digits [32][33][34] Question: North America implants business update [35] - Answer: Growth expected in H2 2024, with market growth in implants estimated at mid-single digits [36] Question: Pricing strategy and competitive positioning [38] - Answer: The reintroduction of Orthophos SL addresses a gap in the imaging portfolio, offering value and premium options [39] Question: Gross margin sustainability [46] - Answer: Gross margins expected to remain consistent with Q1 levels, around 56.6%, for the rest of the year [46] Question: Byte growth sustainability [63] - Answer: Byte growth is driven by investments in treatment planners, advertising, and financing options, with profitability expected to improve [64] Question: DS Core metrics and quantification [70] - Answer: DS Core has over 20,000 accounts, with aggressive subscription goals for 2024 [71] Question: SKU rationalization impact [76] - Answer: SKU rationalization is focused on endo and resto portfolios, with operational efficiencies being realized now and more benefits expected in 2025 and 2026 [76]