DENTSPLY SIRONA - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue and adjusted EPS modestly beat consensus; net sales were $936M vs S&P Global consensus $933M* and adjusted EPS was $0.52 vs $0.50*, driven by gross margin expansion and cost actions, despite U.S. weakness and OIS declines.
• Adjusted EBITDA margin expanded 360 bps YoY to 21.1% on Bite suspension and lower OpEx; GAAP EPS was a loss of ($0.22) on $214M net-of-tax impairment tied to tariffs and lower volumes in OIS and CTS.
• FY25 outlook maintained: net sales $3.60–$3.70B (down 4% to 2% constant currency) and adjusted EPS $1.80–$2.00; Q3 is expected to be seasonally lower with margin pressure as tariffs flow through P&L.
• Leadership transition: Dan Scavilla (ex-GMED) became CEO on Aug 1; preliminary Q2 was pre-announced on July 21; focus areas include customer centricity, U.S. recovery, innovation cadence, and operational discipline—potential catalysts alongside tariff mitigation progress.

What Went Well and What Went Wrong

What Went Well

• Margin expansion and EPS growth: Adjusted gross margin +60 bps YoY to 55.9% and adjusted EBITDA margin +360 bps to 21.1%; adjusted EPS up 6.6% YoY to $0.52.
• EDS resilience and Europe stability: Essential Dental Solutions grew +2.9% reported (+1.1% cc) and Europe was roughly flat in cc (-0.4%) with Germany achieving a fourth consecutive quarter of growth; SureSmile +27% in Germany and +3.3% globally.
• Balance sheet flexibility: Completed $550M hybrid note offering and ended Q2 with $359M cash; net debt/EBITDA ~3.1x; dividend maintained at $0.16/share.

What Went Wrong

• U.S. softness and OIS decline: U.S. sales fell 18.3% (11% ex-BiTE); OIS down 18.1% reported (19.4% cc) on lab softness and premium mix transitions; Middle East volatility pressured value implants.
• Tariff escalation and impairment: Annualized tariff headwind reset to ~$80M gross (from $50M) with ~$25M P&L impact in 2H25; $214M net-of-tax goodwill/intangible impairment tied to tariffs and lower volumes.
• Cash conversion: Operating cash flow dropped to $48M (vs $208M prior year) on working capital and prior-year tax refund; adjusted FCF conversion was 15% vs 155% prior year quarter.

Transcript

Speaker 7

Welcome to the Q2 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-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Andrea Daley, Vice President of Investor Relations. Please go ahead.

Speaker 3

Thank you, Operator, and good morning, everyone. Welcome to the Dentsply Sirona second quarter 2025 earnings call. Joining me for today's call is Daniel Scavilla, Chief Executive Officer, and Matthew Garth, Chief Financial Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investor section of our website at www.dentsplysirona.com. 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 forward-looking 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.

Our most recently filed Form 10-K and any updated information in subsequent Form 10-Q or other SEC filings list some of the most important risk factors that could cause actual results to differ from our prediction. On today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business's financial performance, enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons 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. I will now turn the call over to Dan.

Speaker 1

Thank you, Andrea, and good morning, everyone. This is my first earnings call since taking the CEO role on August 1st. I thought it would be appropriate to open with a few statements before progressing into the Q2 business results. Matt will cover Q2 financials and give an update on our 2025 outlook. First, I want to thank Simon for his nearly three years in the role, where he built a strong team, strengthened communications with our customers, and initiated multiple programs to improve Dentsply Sirona's position in the market. Having come from our board of directors, I can tell you that I personally appreciate the work he's done, and I plan to build on these programs with an eye on moving deeper, faster, and strengthening our long-term position in the market. I look forward to partnering with Matt as our new CFO.

I believe Matt's experience and background are exactly what we need, and we're forming a strong partnership as we move forward together. I've also had the opportunity to engage with senior leadership at Dentsply Sirona, and my initial assessment is that we have the core foundation to shape this company's future. I'm sure many of you are wondering what I plan on doing or what changes you should expect from me. While I do have several hypotheses and ideas on what to focus on, I'm currently working with the team and our customers to listen and learn so we can prioritize and focus our approach before fully developing pathways. There are a few areas that are immediately apparent that I will share with you now, starting on slide three.

I've been focusing initially on providing stability to the organization through the CEO change so we can focus on execution and drive results. I've been active with the DS team, connecting, interacting, and conducting deep dives to listen, learn, and align on our go-forward approach. We will continue to improve our focus on the customer and the customer experience. Every position in every department will make this a priority. We will enhance our support of the customers and our field-based employees through simplifying interactions, speed of response, and increased strategic investments. The field team is and will become even more so a strength of our company, the tip of our spear.

We will focus on enhancing investments in innovation, including speed to market and adding value to our clinicians and their workflows so that they can offer the best products and services to their patients and grow their skills and practices. As market leaders, we will need to shape the future of our markets, partnering with our practitioners to migrate from product offerings into proceduralization, focusing on the complete provider-patient experience, leveraging the strength of our entire company's broad portfolio to outpace competition. DS Core platform is a critical element of the company's strategy, and it continues to gain traction, with 50,000 unique users now using the platform and more connected devices and lab orders processed each month.

We have a strong supply chain under great leadership that I believe we can enhance even further through streamlining several components to unlock value, reduce cost, and free funds to invest in fueling future growth. As you've heard from us, we have programs underway that will continue, but we'll also be looking at more strategic moves to better position ourselves for the future. Wrapped around our commercial enablement, innovation engine, and operations muscle will be streamlined support functions that will add value through simplifying and standardizing systems, processes, and structure that will allow us to move faster, support customers better, and unlock funds that can be redirected into sustained profitable growth. The team has made progress here as seen in our financial results, but there's more work to do in this area.

I believe that focusing on the customer and moving with urgency while investing in our sales team and product development capabilities will unlock value throughout our P&L. We will make decisions that support long-term sustained growth that lead to stronger financial performance, benefiting our business and our shareholders. Moving into our Q2 business results on slide four, global sales were $936 million, decreasing 5% as reported, or negative 7% on a constant currency basis. Excluding the bite impact, sales declined approximately 4%. Adjusted EBITDA margin was 21%, increasing 360 basis points versus prior year Q2. Adjusted earnings per share were $0.52, growing 7% versus prior year. Both adjusted EBITDA and EPS results are driven primarily from bite impact and active cost reduction programs. Cash flow from operations was $48 million for the quarter.

Our data and customer survey in the second quarter show global patient volumes and procedures largely unchanged from previous quarters. From a regional perspective, U.S. sales in Q2 were $293 million, down 18% in total, or 11% excluding the bite impact. Results are driven primarily by continued softness in Connected Technology Solutions and orthodontic and implant solutions. Given the performance, this is a priority area for us to address, and we've already kicked off activities in my first week. European sales were $404 million, basically flat versus Q2 prior year. Germany delivered its fourth consecutive quarter of growth, driven by CTS and SureSmile, which was up over 27%, offset by softness in IPS. The rest of world sales were $239 million, up slightly versus prior year, with growth in essential dental solutions and SureSmile up double digits, partially offset by softness in CTS.

Before I hand the call to Matt, I want to say that I'm excited to join the Dentsply Sirona team and be part of shaping the future of this organization. I believe our potential has never been greater, but it's up to us to harness our resources and shape the future of our markets, placing our customers at the center of all we do and making thoughtful investments to drive long-term sustained profitable growth. Thank you. I will now turn the call over to Matt. Thanks, Dan. Hello, everyone, and thank you for joining us. As Dan noted, it's early days for us, but we are working closely together and share the belief that Dentsply Sirona's potential has never been greater than it is now. Since joining DS, my priority has been helping the team focus on value-aggregated activities.

There is very strong engagement across the company in this regard, and Dan's arrival is helping to further our efforts and increase our pace. Our areas of immediate focus are fully aligned and currently being actioned. First, customer experience. We are directing our firepower to establish the best outcomes for customers through service and innovation. Second, margin enhancement. We are raising the speed of transformation by eliminating waste throughout our operations and focusing the organization on value-aggregated actions. Lastly, capital allocation. We are taking a disciplined approach and making appropriate investments to deliver increasing rates of return and shareholder value. Now let me turn to our second quarter results and a review of our full year 2025 outlook. Begin on slide five.

Our second quarter net sales were $936 million, representing a decline of 4.9% versus the prior year quarter and a 6.7% decline on a constant currency basis, of which roughly half was due to bite. Adjusted EBITDA margins expanded 360 basis points to 21.1%, benefiting from the suspension of bite sales and lower operating expenses. Despite lower sales, adjusted gross margin expanded 60 basis points to 55.9%. Adjusted EPS in the quarter was $0.52, up 6.6% from prior year, largely due to higher adjusted EBITDA margins, FX, and a lower share count, partially offset by below-the-line items and a higher tax rate. As you will have seen, we recorded a roughly $214 million non-cash after-tax charge related to the impairment of goodwill and other intangible assets within the OIS and CTS segments.

These impairments were driven by the impacts of tariffs and current period buying changes relative to the initial investment thesis. In the second quarter, we generated $48 million of operating cash flow compared to $208 million in the prior year quarter. The year-over-year decline is primarily attributable to timing of cash collections, a higher build of inventory in anticipation of ERP go-lives, and tariffs, along with an approximately $42 million foreign tax refund received in the prior year quarter. We finished the quarter with cash and cash equivalents of $359 million. Our Q2 net debt-to-EBITDA ratio was 3.1 times and flat on a sequential basis. We also completed a $550 million hybrid bond offering in Q2, which helped to increase our ongoing financial flexibility. Now let's turn to second quarter segment performance, beginning on slide six.

Starting with EDS, which includes Endo, Resto, and preventative products, sales on a constant currency basis increased 1.1%, with growth in the rest of the world partially offset by lower volumes in Europe and the U.S. It's worth noting that EDS performance in the quarter reflected stable patient traffic across our major markets, a good indicator of the relatively stable environment and consistent with our customer surveys. Shifting to OIS, sales in constant currency declined 19.4%, with bite accounting for over half of the decline. IBS declined double digits in the quarter, driven by lower lab volumes globally and lower implant sales in the U.S. and Europe, which were partially offset by growth of implants in China. SureSmile continued to make solid gains, rising 3.3%, driven by strong performance in Europe and the rest of the world, partially offset by softness in the U.S.

Turning to CTS, sales in constant currency fell 5.9% versus the prior year quarter, as double-digit growth in imaging in Europe was more than offset by declines in CAD/CAM and imaging in the U.S. Note that changes in distributor inventories did not impact the comparison of CTS sales year over year. Moving to well-specced healthcare, sales in constant currency declined 2.5%. As expected, year-over-year results were negatively impacted by a U.S. dealer initial stocking order, which occurred in the prior year period and had an approximately 4.5% negative impact, which was partially offset by the benefit of new product launches. We continue to expect this business to deliver mid-single-digit growth for the full year. With that, let's move to slide seven to discuss our updated outlook for 2025. We are maintaining our full year 2025 outlook for sales, adjusted EBITDA margin, and adjusted EPS.

Now, looking to the third quarter, on a sequential basis, reported sales are expected to be down slightly following normal seasonality, while adjusted EBITDA margin is expected to decline due to tariff-related costs beginning to roll through the P&L. We expect that these factors, combined with a higher tax rate, will result in sequentially lower adjusted EPS. This outlook helps us maintain our full year projection and a relatively balanced first and second half of the year. Before we wrap up, I'd like to share an additional thought on capital allocation. We believe that Dentsply Sirona has the potential to yield sustainably high levels of free cash flow. Effort is underway to work down inventories and reduce our overall working capital requirements. We plan to prioritize investments in innovation and growth, financial flexibility, and returns to shareholders. Now let me summarize on slide eight.

In the second quarter, our top line continued to be challenged, however, we delivered adjusted EBITDA margin expansion and adjusted EPS growth through continued financial discipline. We're maintaining our full year outlook for sales and adjusted EPS. We've added flexibility to our balance sheet, and we are actively working to enhance our cash flow generation. We see significant untapped opportunity at Dentsply Sirona. Unlocking it starts with taking a value creation-oriented approach to financial management, and that work has already started. We believe combining this approach with the customer experience transformation underway at Dentsply Sirona will allow us to yield greater results faster, and we look forward to sharing our proof points in the coming quarters. With that, let's open it up for questions.

Speaker 7

Thank you. At this time, we'll conduct the question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please limit to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Elizabeth Anderson of Evercore ISI. Your line's now open.

Hey, guys. Good morning, and thanks for the question. Welcome, Dan and Matt. There's obviously lots going on in terms of some of the product changes, and you guys are new and things like that. I was wondering if you might be able to give us a little bit of a state of the union as you see the broader overall dental market, so we can kind of suss out what you're seeing on that level and then obviously some of the specific idiosyncratic factors that you were discussing on top of that.

Speaker 4

Thanks for the question, Elizabeth. This is Dan. I'll give you my perspective being five days in the seat here and go at it that way. Just using data that we have and that we've talked about, the Q2 survey in particular, which we found consistent with the ADA survey, saying that patient volumes remain stable, procedural utilization in the electives like implants and ortho continue to be soft. We see some shifts, but nothing meaningful. Maybe Germany, the dentist sentiment looks like it's slightly better. Tough to call, right? You have a lot of activity on the macro with tariffs and activities that fluctuate every hour. I think the real thing is to remain focused on the patient and the chair and the dentist, give them the right products and drive this. When you do that the right way, all of those other things can soften out.

Our thought is focus on the long term and not react to the short term noise that's out there. That's really where we're headed.

Got it. That's very helpful perspective and makes sense. Maybe just as a follow-up, anything to call out in terms of distributor stock-ups or destocking dynamics in the quarter, maybe particularly in CTS and EDS? That might be more of a question for Matt.

Speaker 1

Yeah, it is. Hi, this is Matt. When we said in the prepared remarks that we really didn't see a significant revenue impact on a year-over-year basis related to stocks at dealers, in fact, when you look at it on a year-over-year basis, they're both on an imaging basis and on a CAD/CAM basis in a good, healthy position. The deltas year over year were pretty similar. Feeling good about the overall stock situation.

Got it. Thanks so much.

Speaker 7

Thank you. Our next question comes from David Saxon of Needham & Company. Your line is now open.

Oh, great. Dan and Matt, thanks for taking my questions. Dan, maybe I'll start with a higher-level question for you and nice talking to you again on a Dentsply Sirona call. I just wanted to understand kind of what about the opportunity at Dentsply Sirona motivated you to switch over. With backgrounds in spine, most recently in vision care and other areas at J&J, anything you learned in those markets that might be particularly useful as it relates to Dentsply Sirona's positioning in dental and how you're thinking about profitability?

Speaker 4

Yeah, thanks for the question, David. It is good to connect with you in another part here. I look forward to going forward with you. There's a couple of things. Globus is such a great company and there's such a great learning there, followed by, as you said, the breadth of moving around and different things with J&J. What I saw with Dentsply Sirona is the opportunity to honestly apply all of those. I think it's more about the operational experience and the execution coming from those and bringing it in here that I think would be what interested me most. There's a lot of areas to focus on. I think the vast majority I've had my hands in in the past, and I think I can apply and help the team.

For me, it's about taking my experience, helping what I think is a truly great team accelerate to get where we need to get to.

Great. Thanks for that. As my follow-up, I wanted to ask on implants. Maybe you can give a little more color on how that part of the portfolio did both geographically and then across premium and value. In the script, you talked about it being a priority area and already had some initiatives going. Can you give me a little more color there? What exactly are you doing in that part of the business and how should we think about the impact they might have? Thanks so much.

Speaker 1

Yeah, and the implant story continued this quarter from what you have seen earlier in the year where we've seen slower legacy brands transitioning to our new products, particularly as we looked at the premium side of the business. On the value side of the business, the Middle East volatility, I think you know that we produce a lot of our value implants in that region. The volatility there did impact our volumes with limitations on being able to get product out of certain countries and into other countries. That should be past us as we move forward. From a headline perspective, we saw premium down about 5%, and that is due to the exchange that we are seeing as we roll out the new products and the shift from legacy brands.

We do expect for the full year that we are going to have some growth expected because of the salesforce changes that we've made and that was talked about and what Dan just spoke to in terms of driving some new consumer experiences. Also, from the China VPP program that we've seen so far this year, that should carry us. From a value perspective, Q2 was down, let's call it low double digits, and again, largely due to what was taking place in the Middle East. That will carry through for the full year as we look forward. Overall, the big driver as we're looking at implants has been from the lab side of the house. We'll expect to see that continue through EMEA and the U.S., both in the quarter and then over the year.

Great, thank you.

Speaker 7

Thank you. Our next question comes from Kevin Caliendo of UBS. Your line is now open.

Thanks for the question. Welcome, Dan and Matt. This is Dylan Finley on for Kevin. To start, just wondering if you could maybe reframe some of your tariff assumptions for the year. I believe previously the team had sized it at about $50 million in annual costs per year. I wonder if there's any changes around that. Second of all, does the guide contemplate any mitigation efforts and any kind of supply chain action or price action you can talk about there?

Speaker 1

Yeah, let me start with the activities that the teams are driving today, which have been extremely good results on expense control and driving efficiencies through the supply chain organization. You see that showing up in our margin as we speak. Last quarter, we told you that we were expecting about a $50 million annualized impact from tariffs. What has happened over the past couple of weeks with Europe and with Switzerland and Sweden has shown us that that has grown to about $80 million that we were looking at on an annualized basis. The interesting thing there for 2025 is that we have a similar situation on the $25 million that we spoke about last quarter. The puts and takes and the timing impacts that we've seen are going to result in the same level of impact here in 2025. That $25 million roughly spread across Q3 and Q4.

The mitigation factors, we continue to look at ways, including cost savings, including activities that we are driving towards finding initiatives and finding mitigation efforts. I think that will continue through the end of this year, and we'll look hard at what we're going to do for 2026.

Great, thank you very much. On orthodontics, a quick clarification. Did you see any adjustments or kind of chargebacks on bite? I know last quarter there was like a reverse of some of the refunds. It was a bit of a positive. I am just wondering if there's any adjustment there on bite. Second, just quickly, if you could talk about SureSmile and what you're seeing in the U.S. today. One of your competitors called out challenging conversion rates, a potential shift to wires and brackets from orthodontists. Any commentary you can provide on that market?

Yeah, the assumptions that we put into place, as you know, you saw last quarter around bite and what's happening there. The patient load has come off faster. We did see about a $4 million adjustment here in the second quarter. For the second half of the year, we now believe we are in line appropriately with the rates of the drop-off, not anticipating any further changes in that assumption. As you look at SureSmile, again, we said good performance, 3.3% growth on a year-over-year basis. The U.S., like many other areas that we are seeing in the U.S., there is a little bit of a drag there. The things that we are doing to try and drive change, education programs, working with our salesforce, and driving new ways of working specifically with specialists and orthodontists, that's what you will see help us drive a change in the U.S.

Thank you.

Speaker 7

Thank you. Our next question comes from Michael Cherney of Lyric Partners. Your line is now open.

Good morning, and thanks for taking the question. This might be getting a little ahead of ourselves, but maybe tying back a little bit to what Elizabeth asked off the top. She talked about the end market. I'd love to talk internally about how you see the portfolio. Dan, you know, as you settle in, obviously we have the well-specced review going on, but how do you see the rest of the portfolio? Relative to the business, do you feel at this early point in time like there are areas where you have holes that you want to pursue? How do you think about the build of inorganic versus organic growth along that front? This might be a philosophical question, but thought I'd at least start there.

Speaker 4

No problem. Mike, I appreciate the question. There are a couple of things. I actually believe that no one else is better suited to compete holistically in this market than Dentsply Sirona. We have everything that we need to do this and drive it. It's about focus and execution. I don't think there are major gaps that are out there, and any minor gaps, I think you've got an incredible innovation engine, seriously, that is working on those things. Should we do it faster? Can we penetrate deeper? The answer is, of course, and that will always be it no matter what the performance is that way. The potential, and when I talk about unlocking the potential, it's about using every single thing that we have to impact further than what we've been doing. I think that's really it that way where it comes.

Organic versus inorganic, the answer is both. I lean more towards the organic because I think you build the right in-house capabilities and right productions, and you can actually do that in usually a more profitable way, eliminate unnecessary impairments and other external costs. Opportunistically, when we have a strong cash flow, the ability to buy and accelerate speed, of course, is something that we'll consider and do at the appropriate times.

Got it. Just one more on implants, if I can. As you think about the market, I know under the previous leadership team, there was a major focus on reinvigorating various different areas of growth. How do you feel about where those pieces of the reboot on implants fit as you settle into the seat? I know these are early questions, but just trying to get a sense of some of the key trends we should expect going forward. Thank you.

No, and I appreciate your positioning with it. Listen, I think the following. I think the team's moving in the right direction in several areas. I haven't come in and said we're changing this, we're making a radical shift. What I don't want to do is create a disruption that actually slows us and puts us at a temporary competitive disadvantage. I will continue to look. I might change my opinion as I go deeper in my listen and learn sessions. To date, while I've seen the things that are in progress, I think I'm going to keep them in progress. I want to go deeper and faster in a lot of the areas. I probably won't be as specific and focused in key areas. I think all of these are meaningful areas for us, and I want to see growth and health in all of them.

How we do that, in which order and prioritized order we do that, let me step back and take some time to learn and get you later on. So far, continue the path, accelerate it, and probably broaden where I think we ought to be focused.

Great, thanks.

Speaker 7

Thank you. Our next question comes from Steven Vauquette of Mizuho Securities. Your line is now open. Our next question comes from Michael Sarconi of Jefferies. Your line is now open.

Good morning, and thanks for taking the questions. Dan, congrats on the new role.

Speaker 1

Thanks, Michael.

You're welcome. Just to follow up on the tariff stuff and how it relates to margin expansion, you talked about the updated thoughts being about $80 million annualized impact. Don't want to get too far ahead of ourselves here, but when you think about 2026 and you do see that full impact, how do you think about your ability to continue to expand growth and EBITDA margins?

Speaker 4

Yeah, Michael, let me start. This is Dan, and I'll hand it over to Matt. Right now, we're not in a position to project what we want to do in 2026. The volatility of every hour of every day of the change in tariffs would certainly tell you that prudence is to pause and focus before reacting. Ultimately, what I think we're going to do is assess the situation and see. Keep in mind that we have the manufacturing and logistic firepower globally to position ourselves for a benefit longer term. We just simply aren't going to react in such a volatile market at this point.

Speaker 1

Yeah, the only thing I would add to that, Dan, is as you look at how we're building the rest of 2025 and the outlook that we gave you, it does embed the tariff impact into our outlook. The things that are allowing us to manage through that are the good activities that are taking place in the organization. That is why having a longer-term view here as to what the value is that we can drive through innovation, through our product pipeline, and the changes that Dan spoke about at the top of the remarks, is why we're taking some time to really develop what that's going to mean for 2026.

Got it. Okay, that's helpful. The second one for me, Dan, in the prepared remarks, you mentioned you've already started taking some activities to address the softness in CTS. Any chance you can elaborate on some of those?

Speaker 4

No, I appreciate the question. I think that let me do it and execute it and tell you what we did versus tell you where we're going. I'd rather keep that for competitive reasons and for this team to go execute.

Okay, thank you.

Speaker 7

Thank you. Our next question comes from Jonathan Block of Stifel. Your line is now open.

Speaker 4

Great, thanks, guys. Maybe I'll just start with a clarification that, you know, the $50 million that I thought you said go into $80 million tariff annualized headwind. Sorry, was that a net number or arguably is that gross before any, you know, mitigating initiatives that maybe you're able to put in place over the coming months? Just a clarification there.

Speaker 1

That is the gross annualized impact. For 2025, though, based on how we see the components moving, the impact to us in 2025 is still roughly $25 million.

Speaker 4

Yep, got it. Not a full year and maybe some inventory that's at pre-tariff levels on the '25. Got it. Okay. Dan, this one might be too early to ask, but when we think about some of the company's prior initiatives, there was a lot there. I mean, there was ERP, there was SKU rationalization, there was some consolidating of the manufacturing footprint. You inherit some of those things that are at various stages of completion. We'd love your thoughts. Are those top of the list initiatives? Do those all make sense to you? Are those on track according to prior timelines? Any update that you're able to give there would be great. Thanks. Thanks, Jonathan. It's a great question. What I'd say is I think all of those are the right moves. I think we have to go deeper and faster for sure.

Let me go assess some of that and come back at a later date with a bigger, broader plan. There's nothing in there that I would step in and say stop this or don't do this. It made sense. Listen, the real focus and the macro approach here for this company is we need to return the U.S. to health and sustained growth, period. There are different mechanisms to do that. It simply starts with remaining focused and improving our focus on the dentists, the customers, and the field, supplying them with great innovation and with a consistent supply chain. That's all of us supporting it in-house. That's really where we're going to stay focused. If there are sub-activities to strengthen that, that's really where we'll go along those lines. There'll be some broader things later, more with the focus of the U.S.

health first, the rest of the world and Europe continuing to feed and then driving through that engine. That's really what we're focusing on with the team now.

Speaker 1

Great color. Thank you.

Speaker 7

Thank you. Our next question comes from Jeff Johnson of Baird. Your line is now open.

Thank you. Good morning, guys. Dan, I think John just asked you on your commitment to some of those cost savings initiatives and other middle of the P&L efforts that prior management has been focused on. Maybe I'll go the opposite direction. Just on the top line, there's been an intense focus over the last couple of years on some of this cloud-based DS Core strategy, some of the equipment becoming cloud-native equipment. My view on that, not that you care about that, I guess, but has always been that it might be a great long-term opportunity, harder to monetize that in the short run. We'd love to get your input on how you're thinking about that commitment to DS Core and the intense focus there versus maybe improving some of the actual hardware and products themselves, especially in some of the specialty areas. Thanks.

Speaker 4

Yeah, Jeff, that's a fantastic question, seriously. Thanks for asking it. There are two pathways that you kind of asked there, and I'll go through both. I believe that the world is moving into a proceduralization model, the holistic experience of not just individual components. Having software and implants and instruments, all that are the best in class, is what companies are going to need to go. Of course, there's data and machine learning and all sorts of things like that that can create connectivity and better outcomes and better planning. We have to pursue that path. DS Core is obviously a foundation for that. As you said, the best software in the world is meaningless unless you have great implants and great instrumentation and a procedural flow that benefits the practitioners. The answer is we have to go through all of those.

We'll remain on our course with DS Core. We have to make sure that the investments are healthy and that innovation is consistent in all of those other things of instrumentation and implants as well. When Matt and I discuss how to unlock value or where to go, we're signaling that we need to streamline throughout the entire P&L, not just the middle, to free up cash so that we can reinvest and drive sustained growth through all of those mechanisms.

Fair enough. Maybe just one follow-up question, just on your value implant commentary around MIS and maybe some manufacturing headwinds there throughout the rest of the year. How confident are you or how are you able to assess whether it's truly getting product out the door versus market share gains for some of your competitors who have really focused on those value implants as well over the last couple of years? It seems like the value implant side of the market still has a little more strength than premium. For that to remain down, and I don't know if you said down double digits the rest of the year, but still down the rest of the year, a little surprised to hear that. Thanks.

Speaker 1

Yeah, no, that's a good point of reference. The second half of the year will definitely be stronger on the value side. That event in the Middle East that went down obviously had an impact on our ability to ship out of the region. You've seen some headwinds there, but that will flip and we will be competitive as we move into the second half of the year on the volume side. The bigger piece of the overall implant story, though, you also noted, which is overall competitiveness and what is taking shape in the market. I think those lean purely into what Dan was talking about with changes and movements and evolutions that are taking place with our salesforce in the U.S. We've seen over the last couple of weeks a significant retraining and education program that the U.S. team has launched.

Those are the types of efforts that are going to allow us to be able to get back into the game and drive growth in premium.

Thank you.

Speaker 7

Thank you. Our next question comes from Brandon Vasquez of William Blair. Your line is now open.

Hi, everyone. Thanks for taking the question. I wanted to follow up on a comment of Cherney's thought that was going on. I think it was to John's question, but how much of the U.S. business in your mind as you come into this seat is underperforming simply because of execution on behalf of Dentsply Sirona, or how much of it is simply underperformance of the dental macro market?

Speaker 4

Brandon, it's a great question. My honest answer is let me evaluate it and go deeper and see. To make that split this early on, I'm not really quite comfortable doing it. I do have the belief that we have an incredibly strong team in the field and a great bag. I think we have to look at ourselves and say, how can we move with better speed and decision-making so that we give our field the chance to actually come out and perform stronger than they've been? What that % split is versus macro, I don't really know, but I happen to believe that when you have the right team doing the right things, it softens a lot of those macro impacts anyway. Let me dig deeper in, come back to you once I have some better understanding.

Okay. I guess that my follow-up is related and it somewhat leads into this, which is the dental market has seen macro headwinds for several years now. I'm not sure, and you guys, I'd be curious if you guys disagree with me, but I'm not sure we see kind of like a silver lining here and where things are meaningfully improving for dental in the foreseeable future, or at least in the next six, let's call it 2025. Again, if you disagree, please let me know. If this is the case for a little bit of time now, does Dentsply Sirona need to readjust to operate in this new environment? I think the prior leadership team, while there were a lot of great execution initiatives going on, there was a chunk of kind of their EPS goals that was built on improving macro.

Is this something that you guys think you will bank on as you start to develop plans, or do you think the macro is weighing on the sector so much that you need to just build plans to execute regardless, and anything that macro would just be upside to that?

No, I'll take a swing at that. I think macro changes over time, and I think that as we look, even to your point to the foreseeable future, it will obviously evolve both stronger and weaker over our lifetimes. That's something that you need to think about as focused on the long term anyway. How do you thrive in that? I happen to believe that a strong cash flow and a strong profitability that allows you to go buy and execute and do what you want will allow you to react in a very meaningful way and eventually lead the market in a stronger way. U.S. growth right now that generates more profitability through our programs continuing and expanding that give us stronger profit and cash are going to allow us to not only react to but shape the macro as we go forward.

It's about making sure we focus on the holistic set of our teams and portfolios to be able to do that. While that sounds lofty, I truly believe that it is more than doable.

Speaker 7

Thank you. Our next question comes from Alan Lutz of Bank of America. Your line is now open.

Good morning, and thanks for taking the questions. I have a high-level question for Dan and Matt. There are a lot of areas where you can focus investments as you've talked about: salesforce, implants, aligners, clinical education. You talked about DS Core. I know it's very early, so not looking for any specifics on where you're looking to invest, but just any early learnings and thoughts you've had as you've looked at the business. Moving forward, how should we think about timing of potential investments here? Would this be a shift of dollars you're already spending, or would this be incremental spend? Thank you.

Speaker 4

Yeah, I'll go first and then let Matt kind of go in there. My experience, not just Dentsply Sirona, but my experience would show that a focus and investing on the customer and the field are always going to be the thing that will help us be the strongest and go. That's going to be there. There's nothing that Matt and I would signal as a significant shift that would throw off your models at this point, but rather us looking with our eyes where we can find efficiencies and free up cash to reinvest and ideally do that in a way that can generate growth. I would tell you we're not going to see a radical shift that's going to throw you off. We are going to dig deep and move fast for sure.

Ultimately, I think giving the field what they need, providing the customers what they need is really the key here. Doing that in a faster manner with more options in an easier way is what I think we're going to focus on.

Speaker 1

Just to add, because I think Dan and I are in 100% alignment, and I frankly, in my time here so far, I think the entire team is, which is there is a repurposing of spend that we can do to drive speed, to drive growth, and put areas where the team was already looking for efficiencies, namely in those middle P&L elements, but certainly within the corporate, shifting those into the field, shifting those into innovation. I think that's the primary viewpoint that I have that I'm going to try and keep and build out with Dan. The team is of the same mindset. I don't know yet if there's a significant amount of additional incremental spend. I will tell you we're going to go through our strategic planning process. We will go through our annual planning process.

That will be a great time after that to really hone in on some of the changes that we want to drive from a modeling perspective. All of it is to reformulate a financial model for Dentsply Sirona that returns higher cash, that gives us the optionality for growth and returns to shareholders.

Speaker 4

Yeah, I would just add one last thing. Matt and I are big fans of spending what we earn and actually reducing leverage that will create longer-term flexibility.

Great, thank you very much.

Speaker 7

Thank you. Our next question comes from Vic Chopra of Wells Fargo. Your line is now open.

Hey, good morning, and thanks for taking the questions. Dan, congrats on the new role and looking forward to continuing to work with you. I just had a quick high-level question. Dan, maybe just talk about some of the lessons you've learned from your time at Globus Medical that you think are applicable here. I had a quick follow-up, please.

Speaker 4

Hey, Vic. Thanks. It is great talking to you. I look forward to getting together again. Globus is such a great facility with such great teams. I could talk a lot about that, but I won't. What I learned from that team is hands-on, literally hands-on, not some executive talking from a tower, but getting in the field with the reps and living their life eye to eye with the dentist and then owning it back and making sure there's execution where you as CEO are accountable to that person in the field to do it and do it better. I think that is the strength of Globus, and that's what I'm going to bring in here with that learning.

Great. I had a follow-up question. Apologies if this has been asked. I've been bouncing on a couple of calls, but I noted a double-digit decline in implants and prosthetics in the quarter. This is sort of worse than you saw in Q2, which I believe was a mid-single-digit decline. Can you maybe provide some additional color on what you've seen in the market and your expectations for the rest of the year? Thank you.

Speaker 1

Yeah, we went over it earlier, but let me do a quick summary here. We did see a performance trend, and the way that we spoke about it was breaking out premium and value. In the quarter, premium down slightly. We continue to see the shift from our legacy brands to the new evolutionary products that we made in the market. Some changeover headwinds there on the value side. The volatility in the Middle East did provide a bit of a headwind for us in the quarter. It was significant double digits, low double digits on the value side. That will carry through for the rest of the year. On the value side, you will see performance improve, but it will still be down overall for the year. The labs was the other place that we called out that had a significant double-digit decline, primarily in EMEA and the U.S.

That rounds out, I think, on the implant side. When you look at the aligner side of the house, SureSmile up 3.3%, and then you adjust out the bite performance from the overall segment, that gets you back to that double digit.

Speaker 7

Thank you. Our next question comes from Steven Vauquette of Mizuho Securities. Your line is now open.

Oh, thanks. Good morning. I apologize. Earlier, I was kind of juggling multiple calls at once. You know, Dan, this is obviously a time for you to focus on the short term as you're joining the company. One area that was somewhat in limbo over the past year was some of the relationships with major dental distributors. I guess I'm just curious if you could provide a little more color on where that ranks on the totem pole of your priorities. Do you have a general bias coming into the role that distributors are vital or the door be open maybe somewhere down the road where maybe a larger portion of your sales are direct? Just curious to get any early thoughts around this whole topic. Thanks.

Speaker 4

Steven, appreciate the question. A couple of things. I did have a chance to connect with both Schein and Patterson CEOs, and we're going to get together as I get further up to speed, have conversations. I would tell you, I'll refrain from telling you what I think and where we're going and what we're doing right now until I have a chance to better engage and learn this. I am not really focused on the short term. Everything we're doing is going to be about long term here. That would include what our relationship is with those. For now, I'm active in speaking and engaging with them. I need to go further. Let's kind of readdress that after I've got a little bit of time under me.

Okay, makes sense. All right, thank you.

Speaker 7

Thank you. Our next question comes from Aaron Wright of Morgan Stanley. Your line is now open.

Thanks for taking my questions here. There have been several iterations of turnaround stories, not just at Dentsply Sirona, but also across dental. I guess, can you talk about what's different in your approach? Outside of some of these investments that you're making and execution and everything, what do you really think is the optimal mix across your business to really set yourself up for success in dental and more consistent growth? Are you taking a hard look at even some of the strategies around some of the more flagship areas? For instance, how do you feel about the game plan around CAD/CAM? How much are you taking into account the evolution of the competitive landscape there and other parts of your business that you're taking a hard look at? Thanks.

Speaker 4

Aaron, I appreciate the question, and I think it's a legitimate question. Being five days in, let me dig deep, listen, learn, engage with the field, engage with customers, evaluate this out. I do feel like the company is tracking in the right direction, but not even fast enough. I think there are some things we can do better internally. Let me get through my listen and learn sessions, and I will connect with you and probably give you broader scopes as I get a quarter or two under my belt to further answer that question the right way.

Speaker 7

Okay, great. Understood. Thank you. Thank you. This concludes the question and answer session. I would like to turn it over to Daniel Scavilla, CEO, for closing remarks.

Speaker 4

Thank you all for joining the call today. Matt and I look forward to engaging the investment community as we settle into our respective roles. Before we close, I want to take a moment to thank the entire Dentsply Sirona team for the warm welcome and for their unwavering commitment to our customers. As I shared earlier, I'm truly excited to be here and to be part of shaping the future of the organization so that we can accelerate the value we provide to our customers and unlock the true potential of the company. In addition, I want to thank Andrea Daley for her dedication and leadership in the Investor Relations role. Andrea will be moving into a new opportunity elsewhere. We're grateful for her contribution, and we wish her continued success in her new role. Thank you, everyone.

Speaker 7

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.