DENTSPLY SIRONA Inc (XRAY)

Byte Business Suspension
Q: What's the status of the Byte business, and should we remove it from our models?
A: The company is conducting a complex, multifactorial review of the Byte business, considering regulatory, technical, commercial, and operational factors, including the ongoing FDA review, which may take time and require further investment. In the recent quarter, Byte generated about $40 million in revenue, down roughly 19% sequentially, operating at a loss due to high OpEx costs. While marketing activities have ceased and relevant employees have been informed of job terminations, management has not yet decided to shut down the business and continues to assess its viability. - -

Implant Business Underperformance
Q: What's causing the underperformance in the implant business, and what's the outlook?
A: The implant business saw a decline, particularly on the value side, due to factors like lapping the China situation, Middle East issues where Turkey won't import products manufactured in Israel, and timing issues in Central Europe. The company acknowledges internal execution failures and is making leadership changes to better communicate the value of their implants. They believe they have the portfolio to win in this space and are investing in clinical education and expanding the sales team, especially in the U.S. - - -

Guidance and Q4 Outlook
Q: How does the Byte situation impact Q4 guidance, and what are expectations for 2025 earnings?
A: The implied Q4 organic growth guidance is down high single digits, with the Byte situation contributing significantly as shipments stopped after October 24, removing expected revenue. Additionally, there's a $20 million consumables revenue pull-forward from Q4 into Q3 due to an ERP conversion. While operating expenses are down year-over-year, revenue declines are outpacing cost savings. Management refrained from providing specific 2025 earnings guidance but noted that once Byte-related costs are addressed, there should be less impact on quarterly results going forward. - -

Cost Savings Realization
Q: Why haven't the cost savings materialized at the bottom line, and will you adjust investments?
A: The company completed a $200 million annualized savings from the first restructuring program and is on track with a second program targeting $80–$100 million in savings, with most run-rate savings expected in 2025. However, revenue challenges, including declines in Byte and macroeconomic headwinds, have offset these savings, keeping earnings flat year-over-year. Management believes in investing in growth areas and cannot cut their way to growth, focusing on areas like aligners, implants, and improving company hygiene factors like websites and e-commerce. - -

CAD/CAM Retail Demand
Q: Is lower retail demand in CAD/CAM ahead of the Primescan 2 launch, and what's impacting sales?
A: The significant drop in retail demand in Q3 is not attributed to anticipation of Primescan 2. The company performed well with Primescan 2, selling over 900 cameras, marking the best scanner quarter in units this year and the second-best in three years. Lower demand is linked to macro factors like interest rates rather than competitive pressures. Notably, only 27% of German dentists have a scanner, indicating significant room for digitization in that market once conditions improve. -

Distributor Relationships and Inventory
Q: What's the status of distributor relationships and current channel inventory levels?
A: The company maintains strong relationships with distributors and continues to work closely with Patterson despite ongoing discussions over certain points of contention. In Q3, there was a $48 million sequential increase in equipment orders from dealers, attributed to normal seasonality and product launches like Primescan 2, without special incentives. Additionally, there was a $20 million increase in consumables due to an intentional pull-forward ahead of an ERP conversion, aiming to minimize risks in Q4. -

Macro Headwinds in Key Markets
Q: How are macroeconomic factors affecting key markets like Germany and China?
A: Germany represents about 10% of total sales, with a significant portion in the Connected Technology segment. Elective procedures declined based on a survey of over 1,300 individuals, particularly in Japan and China, while the U.S. and Germany saw no further degradation. High interest rates and reductions in dental benefits are expected to impact patients' willingness to undergo elective procedures like implants and aligners, suggesting a longer period of market compression than initially hoped. - - -

SKU Rationalization Impact
Q: What's the progress on SKU rationalization, and will it impact the top line?
A: The company plans to eliminate all non-revenue SKUs by the end of the year and migrate the majority of revenue-generating SKUs by the end of 2025. This initiative primarily focuses on the endodontics and restorative businesses. While no specific top-line impact was shared, management indicated that SKU optimization efforts are progressing as planned, with no major changes since the last update. - - -

Orthodontics Growth Excluding Byte
Q: How should we think about orthodontics growth excluding Byte, and what's the strategy with SureSmile?
A: Excluding the impact of a partner that stopped purchasing, the SureSmile business grew mid-single digits in North America and showed healthy growth in Europe and the Rest of World. The company is focusing on general dentistry and plans to invest in fixing the front-end software for SureSmile. Once completed, they intend to expand their commercial team to target orthodontists directly, leveraging talented personnel from Byte in software and demand generation to stimulate further growth. -

Dental Benefits Reduction Impact
Q: How will reductions in dental benefits affect the implant market and company plans?
A: Reductions in dental benefits are expected to impact patients' willingness to pay out-of-pocket for procedures like implants and aligners. This, coupled with macroeconomic factors like high interest rates, is anticipated to create headwinds for the implant market. Despite this, the company believes investing in growth areas remains important, as implants and aligners are still attractive growth segments compared to core dentistry. -

Virtual Internal Sales Team
Q: How will the new virtual internal sales team contribute to growth?
A: The company has hired over 75 individuals for the virtual internal sales team, who have begun making calls to customers in a specific U.S. region. They expect this team to start generating revenue in 2025, targeting opportunities across the portfolio, particularly in accounts that currently purchase only a few thousand dollars annually. The aim is to increase the company's share of business by reaching out to more of the 150,000 dentists in the U.S. and making it easier to do business with Dentsply Sirona. -