Q3 2024 Earnings Summary
- Strong growth in digital dentistry solutions, with the company's RealGUIDE software sales increasing over 30% year-over-year, indicating significant opportunities in an underpenetrated market.
- Positive momentum in the U.S. market, which accounts for 60% of revenue, with U.S. sales growing 1.6% in Q3 (excluding iTero sales), and expectations of continued growth as the North American market returns to health.
- Improved financial position and operational efficiency, with gross margin increasing by 260 basis points sequentially due to manufacturing cost efficiencies, providing additional financial flexibility to invest in innovation and sales initiatives.
- The company narrowed its full-year revenue guidance range to $450 million to $455 million from $450 million to $460 million previously, lowering the top end of the range, which could indicate concerns about future revenue growth.
- International sales declined by 6.6% in constant currency, with challenges in markets like Japan, Italy, and Spain. The loss of a Dental Service Organization in Spain impacted revenues by approximately $3 million, suggesting potential ongoing international market weaknesses.
- The company is unable to accurately quantify the size of the patient backlog or the timing of patient return in the restorative segment, indicating uncertainty in forecasting future growth in key product areas.
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U.S. Market Recovery and Guidance
Q: How confident are you in Q4 volumes and outlook?
A: Management expressed confidence in finishing the year strong, highlighting that the North American market, their largest and most profitable region, is returning to health and growth. They believe this is one of their most confident moments in the past 12 months and feel well-positioned going into next year. -
Gross Margin Sustainability and SG&A Guidance
Q: Can you sustain current gross margins, and how should we think about SG&A?
A: Management is pleased with a 260 basis point sequential improvement in gross margin, driven by manufacturing efficiencies and organizational resizing. They expect gross margins to remain in a similar range into Q4 and aim to continue this trend into 2025. Proceeds from improved margins are being invested in innovation and the U.S. sales force to drive long-term sustainable growth. -
Digital Business Growth
Q: How is the digital side of the business progressing?
A: The digital business has been a highlight, with digital sales (excluding iTero) up 10% globally. Specifically, the RealGUIDE software segment grew over 30% year-over-year, reflecting strong adoption and differentiation in the market. Management is pleased with this continued progress and sees digital as a key enabler for growth in an underpenetrated market. -
International Outlook
Q: Can international sales grow in Q4, and will delayed orders return?
A: Management expects Japan to return to growth in Q4 after timing issues with orders in Q3. Italy's timing issues are expected to resolve, though there is some macroeconomic pressure in Europe. Overall, they anticipate international markets to contribute positively in Q4, with U.S. performance driving results. -
Restorative Products as Lead Indicator
Q: Are patients returning for implants after restorative procedures?
A: Management believes biomaterials are a good leading indicator of future implant work and is seeing particular pockets in the U.S. where patients are returning. However, they have not yet accurately sized the patient backlog but are actively analyzing the data.