Q3 2024 Earnings Summary
- Successful Launch of Primescan 2 Driving Growth in CAD/CAM Segment: Dentsply Sirona sold over 900 units of Primescan 2 scanners worldwide since its launch, resulting in the best quarter for scanners this year and the second best quarter in three years, demonstrating strong market acceptance and potential for continued growth in the CAD/CAM segment.
- Significant Cost Savings from Restructuring Initiatives Positioning for Improved Profitability: The company completed its first restructuring program achieving $200 million of annualized savings, and the second restructuring program targeting $80 to $100 million in savings is on track, with run-rate savings expected to be realized in 2025, enhancing profitability.
- Strong Growth in Aligner Business Demonstrates Effective Investment Strategy: Dentsply Sirona's aligner business posted very solid growth in Europe and the Rest of the World, and in North America, the SureSmile brand grew mid-single digits excluding one key partner, indicating successful investments in sales teams and clinical education are driving growth in this high-potential market segment.
- Revenue declines are outpacing cost savings, leading to flat earnings despite restructuring efforts. The company acknowledges that operating expenses are down, but revenues are declining faster, resulting in earnings being flat year-over-year. This raises concerns about the company's ability to grow earnings in the face of declining revenues. ,
- The Byte aligner business is declining significantly, with revenues down to $40 million in the recent quarter, a 19% sequential decline, and operating at a loss. The company faces uncertainty regarding the future of Byte and is considering strategic options, which may include discontinuation. This could continue to negatively impact earnings and signifies challenges in the aligner market segment.
- Underperformance in the Implants business, with value implants declining for the first time this year. The company has failed to meet internal expectations in this segment and is making leadership changes to address the issues. This underperformance signals deeper operational challenges and raises concerns about the company's ability to compete effectively in the implants market.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Digital Scanners & Imaging Technology | Previous quarters highlighted Primescan, Primescan Connect and strong CAD/CAM growth—with imaging technology facing headwinds in Q1 and Q4. | Q3 2024 featured the launch of Primescan 2, DS Core integration, record scanner sales and improved customer sentiment in key markets. | Consistent focus on scanner innovation; imaging remains volatile while hardware successes drive positive sentiment. |
Cost Management & Restructuring | Q1–Q4 emphasized restructuring savings, discretionary spending cuts, and transformation initiatives to improve margins. | Q3 2024 reported completion of a restructuring program, announced a second phase (targeting $80–$100M savings) and noted over 70% execution of Phase 2 actions. | Steady, ongoing cost discipline with incremental transformation progress, indicating a long‐term focus on efficiency despite revenue challenges. |
Aligner & Orthodontics | Earlier periods (Q1, Q2, Q4) showed strong growth for SureSmile and Byte, with double-digit gains and expanding market opportunities. | Q3 2024 revealed a voluntary suspension of Byte Aligners along with regulatory reviews and declining sales, while operational adjustments are underway. | Shift from robust growth to regulatory scrutiny and operational disruptions in Byte, posing potential future impact despite stable SureSmile performance. |
Implants | Q1–Q2 and Q4 displayed mixed performance with strong growth in China offset by declines in the U.S. and Europe, along with strategic turnaround efforts. | Q3 2024 experienced mid-single-digit declines across key markets, with leadership changes and renewed focus on turnaround strategies. | Increased pressure in key geographies with mounting challenges; turnaround strategies are intensifying amid significant future impact potential. |
Connected Technology Solutions (CTS) | Q1 and Q2 pointed to declining imaging equipment sales, soft demand for equipment, and mixed results in Equipment & Instruments versus CAD/CAM growth. | Q3 2024 showed a slight year‐over‐year organic sales decline but sequential improvements in distributor inventory and CAD/CAM uplift from Primescan 2. | Persistent challenges in imaging contrast with positive scanner performance; overall mixed results continue with modest sequential recovery. |
EPS Growth Targets & Financial Guidance | Q1, Q2 and Q4 guidance was more optimistic – with steady EPS targets (including the $3 EPS by 2026 goal) and positive trajectory on adjusted EPS growth. | Q3 2024 revised EPS guidance downward, citing macro pressures and issues in Byte, with a lower 2024 outlook and doubts over the $3 target. | Sentiment has turned more cautious, reflecting emerging headwinds that challenge previous optimism on EPS growth targets. |
Macroeconomic & Regulatory Headwinds | Q1 and Q2 reported challenges from higher interest rates, inflation, and some regulatory adjustments (especially affecting Byte). | Q3 2024 reiterated ongoing macro softness (e.g. soft elective procedures, reduced capital demand) and introduced intensified regulatory issues around Byte. | Persistent macroeconomic pressures combined with intensified regulatory issues are exacerbating operational challenges. |
New Product Launches & Portfolio Expansion | Q1 and Q2 emphasized new product initiatives (e.g. X-Smart Pro, DS Core, Orthophos SL relaunch) and SKU optimization for portfolio rationalization. | Q3 2024 maintained focus on driving growth through the Primescan 2 launch, further DS Core integration and expanding Orthophos SL into additional markets. | Consistent reliance on innovation and portfolio expansion; momentum continues to build with new launches as critical growth drivers. |
Transformation Initiatives | Q1, Q2 and Q4 discussed supply chain optimization, SKU rationalization, and ERP modernization (e.g. SAP 4HANA in the U.K.) to drive long-term efficiency. | Q3 2024 celebrated key milestones—U.S. ERP deployment, progress in SKU optimization with anticipated gross profit benefits, signaling ongoing transformation. | Advancing steadily with major milestones achieved; continued focus on operational transformation will likely have a significant long-term impact. |
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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.