DENTSPLY SIRONA Inc. (XRAY) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Cash Flow Quarter: Over $100 million in cash became available, with plans to return this to shareholders through additional share buybacks in Q3.
• Double-Digit Growth in Aligners: Despite some headwinds, aligners saw double-digit growth, demonstrating strong demand in this segment.
• Successful Restructuring Initiatives: Phase 1 of the restructuring plan is complete or well underway, with Phase 2 ready to advance, aiming for $80 million to $100 million in annualized structural and operational synergies.
• Investments in High-Growth Categories: Continued investments in Wellspect Healthcare and orthodontics, including plans to recruit at least 100 DENTSPLY SIRONA inside sales reps in the U.S. by the end of Q1 2025.
• Positive Relationships with Key Stakeholders: Efforts in reestablishing positive relationships with customers and investors have been instrumental in driving long-term shareholder value.

Pessimistic Highlights

• Revenue Decline: Q2 revenue of $984 million was unfavorably impacted by lower sales in the Connected Technology Solutions segment and macroeconomic conditions.
• Pressure on Capital Equipment: Continued pressure on capital equipment sales due to macroeconomic conditions, pricing degradation, and weaker-than-expected performance in major markets.
• Revision of Full-Year Outlook: Based on first-half performance and continued macroeconomic headwinds, the full-year outlook has been revised downwards.
• Challenges in Equipment Market: The demand environment for equipment remains soft due to macro headwinds and higher interest rates in most markets.
• Legislative Changes Impacting Aligner Business: Legislative changes required adjustments in the go-to-market model for aligners, impacting growth expectations.

Company Outlook

• Revised Full-Year Outlook: Full-year net sales expected to range from $3.86 billion to $3.90 billion, with organic sales down 1% to flat. Adjusted EPS is projected to be in the range of $1.96 to $2.02.
• Continued Investment and Restructuring: Plans to continue investing in the business to drive profitable growth and execute Phase 2 of the restructuring plan to achieve cost savings and improve operational efficiency.
• Focus on High-Growth Categories: Ongoing investments in orthodontics, inside sales teams, and e-commerce to drive demand and improve competitiveness.

Q & A Highlights

• Q: Can you provide more details on the macro conditions impacting the business? (Brandon Vazquez, William Blair)

  A: The macro environment has not worsened but remains challenging, especially for equipment sales in Germany, parts of Asia, and the U.S. Consumables have seen stable patient traffic, but specialty procedures have declined. (Glenn Coleman)

• Q: What are the plans following the non-renewal notice to Patterson Companies? (Dylan Finley, UBS)

  A: The non-renewal is exclusive to Patterson in the U.S. and Canada, with hopes to reach a new agreement that reflects the current environment and value brought by DENTSPLY SIRONA. (Simon Campion)

• Q: Can you discuss the expected margin improvement in the second half of the year? (David Saxon, Needham & Company)

  A: EBITDA margin is expected to improve sequentially, with lower OpEx expenses from restructuring efforts contributing to margin improvement. (Glenn Coleman)

• Q: How does the legislative environment impact the aligner business, and what are the expectations for growth? (Jon Block, Stifel)

  A: Legislative changes have required adjustments in the go-to-market model, impacting growth expectations. Investments in government relations and internal process adjustments are being made to mitigate these impacts. (Simon Campion)

• Q: Can you size the revenue or growth coming from business through Patterson? (Dan Clark, Leerink)

  A: Patterson accounts for about 7% of annual revenues, predominantly in equipment sales in the U.S. and Canada. (Glenn Coleman)