The Dentsply Sirona Third Quarter 2023 Earnings Conference Call is about to begin. The operator introduces Andrea Daley, Vice President of Investor Relations, who will be leading the call. The company's CEO, CFO, and CBO will also be present. The earnings press release and slide presentation can be found on the company's website, along with historical financial data. The speakers will be making forward-looking statements and discussing non-GAAP financial results. The company believes that non-GAAP measures provide useful information for investors and allows for greater transparency. A reconciliation between GAAP and non-GAAP results can be found in the press release.

The company's Q3 2023 earnings call provided an overview of their recent performance and revised outlook. The call also addressed the recent events in the Middle East and the company's upcoming Investor Day. Despite challenges in certain markets, the company is making progress on their strategic plan to improve long-term performance.

Despite facing challenges in the quarter, the company saw growth in key areas such as China and the U.S. CAD/CAM business. They also announced plans for share repurchases and are focused on their transformation journey. The company is seeing positive results from their reinvestment in relationships with DSOs and are committed to clinical education. They hosted 4 DS World events with over 7,000 attendees and highlighted the role of DS Core in delivering the future of care.

The company remains focused on innovation and has recently launched a new simulator and made updates to DS Core. The communication canvas feature has received positive feedback and has led to increased treatment acceptance rates. The company also launched OSSIX Agile as part of their implants and bone regeneration portfolio. Quarterly regional business review meetings have identified growth opportunities and the company plans to continue these meetings in the future. The CEO then mentions the company's revised outlook.

In the third quarter, the focus on customer centricity and transformation helped inform the organization's view of market trends. However, weak sentiment in Australia and Germany, along with reduced patient volume in the U.S., led to a revision of the outlook. The noncash after-tax charge of $302 million in Q3 was due to adverse macroeconomic factors. Despite this, EBITDA margin expanded and adjusted EPS grew by 20%. Third quarter revenue was $947 million, with reported and organic sales remaining flat year-over-year.

In the third quarter, foreign currency was slightly favorable but lower than expected due to a strong U.S. dollar. Sales in China grew 20%, while our Global Aligners and CAD/CAM businesses also saw growth. However, softer demand in Germany and the U.S. affected sales in imaging, implants, and consumables. Despite flat revenue, adjusted EPS increased by 20% due to cost reductions, effective cost management, and price increases. Operating cash flow improved by 23% and free cash flow conversion was 93%. The company's cash and cash equivalents amounted to $309 million and their leverage ratio improved to 2.5x. $29 million was returned to shareholders through dividends in the third quarter and a total of $236 million has been returned year-to-date.

In the third quarter, the company's Connected Technology Solutions segment saw a decline in organic sales, while the Essential Dental Solutions segment also experienced a decline in sales due to lower volumes in the US and Europe. However, the Orthodontic & Implant Solutions segment saw growth in both SureSmile and Byte aligners, with SureSmile benefiting from market share gains and new product offerings. The company also announced plans to repurchase $150 million in shares by year-end.

In the third quarter, China saw a 30% increase in implant sales, while Wellspect Healthcare had a 6.8% increase in organic sales. This was due to new product launches and growth in all regions. In the U.S., overall sales declined by 1%, but there was strong growth in aligners and CAD/CAM equipment. Europe saw a decline in organic sales due to the impact of the recession in Germany, but excluding Germany, sales were flat. The rest of the world saw a 4.5% increase in organic sales, with strong performance in China and double-digit growth in Latin America.

The company's updated outlook for 2023 includes a decrease in sales and profitability due to negative trends in the dental industry, higher interest rates, and unfavorable FX impact. The ongoing conflict in Israel may also have a minimal impact on the company's operations. The estimated EBITDA margin for the full year is expected to be greater than 17%, with a lower tax rate and share count due to planned share repurchases.

The company has updated its full year adjusted earnings per share forecast to be in the range of $1.80 to $1.85, which is a decrease of $0.14 compared to the previous outlook. This is due to lower organic sales, lower CTS gross margins, and additional FX headwinds, partially offset by a lower tax rate. The company is still on track to reach its goal of $3 in EPS by 2026, with most of the progress being within their control. The company is seeing momentum in the DSO segment, which is driven by increased sales focus.

The company has invested in a strong commercial team to increase sales with DSOs and has seen positive traction with the DS Core product. There was no impact from issues at one of the company's largest distributors in the third quarter, but the distributor represents a significant portion of the company's annual sales.

Henry Schein has been a long-term partner for the company and they are working closely together to support customers during an internal issue. The potential impact on fourth quarter results is difficult to quantify at this time, but the company has factored in some conservatism in their guidance. The CFOs of both companies are in close contact to minimize customer impact. The company saw a falloff in September that they were not expecting, which may be contributing to the step down in fourth quarter guidance for the dental industry.

The speaker discusses the company's sales trends in September and October, noting a decrease in sales due to the macro environment. They also mention a global survey conducted with over 1,000 respondents, which showed common themes of patient cancellations and lower volumes in various countries. However, there are still opportunities for the company in terms of more efficient workflows and increased treatment acceptance.

The company believes that their communication canvas and DS Core technologies can help their customers grow their business and be more profitable, despite the current macroeconomic conditions. They expect low single-digit growth in orthodontics due to the macro environment and student loan repayments, strong growth in Wellspect, and consistent performance in CTS and EDS segments.

The speaker responds to a question about the impact of the Henry Schein acquisition on other distributors and then moves on to discuss the company's performance in China. They state that they have not seen any significant changes in ordering patterns from other distributors. They also mention that they have not experienced any negative effects from the ongoing anticorruption campaign in China and are happy with their strong growth in the country, particularly in the implants segment. They expect to see continued growth in the fourth quarter.

The speaker discusses positive performance in China, particularly in the Implants business, despite some challenges in the CTS business. They also mention their focus on ethics and compliance in the region. The speaker then addresses the topic of adult orthodontics, acknowledging industry pressures but noting that their business has held up relatively well. However, they anticipate a softer outlook in the fourth quarter and consider the impact of macroeconomic factors and recent developments in the market, such as student loan repayment and SmileDirect filing for bankruptcy.

The speaker, Simon Campion, discusses the current state of the market and how their company, along with their partner Glenn Coleman, is innovating and engaging with customers. They have seen success with their SureSmile Simulator and Byte Plus program, with high treatment acceptance and NPS scores. Coleman adds that the dental market is attractive in the long term, but they are being cautious in the short term due to the macro environment and other factors. He also mentions the potential opportunity with SmileDirect Club's bankruptcy. The next question from Jon Block asks about the headwinds experienced later in the quarter.

The exit rate in September had a significant impact on the company's performance, particularly in the U.S. and Europe. The biggest drop was seen in CTS and imaging, while CAD/CAM and milling had a strong quarter. Consumables also saw a decrease, partly due to reduced dealer inventory levels. The company's assumptions for the rest of the year are based on consistent trends from September. The company implemented price increases this year and more details on 2024 will be provided next week.

Jeff Johnson asked about the company's commitment to the $3 number in 2026, which Simon Campion reiterated. Glenn was asked about the potential impact of a stronger U.S. dollar, end market concerns, and inflation on the $3 number that was put out at the beginning of the year.

The speaker is asking if the company has quantified the incremental headwind, or external obstacles, that have occurred since their $3 target was announced. The company reaffirms their $3 target and states that they will not cut back on R&D or go-to-market spending, but will instead be more judicious with their spending. The CFO adds that they are still within their guidance range and most of the path to reach $3 is within their control.

The speaker is confident that they can reach $3 in the near future, but if the macro environment continues for a long time, it will be challenging. They have been putting more effort into their dental implant business, but it may take a couple of years to see a turnaround. They have completed a portfolio survey and received positive feedback from over 2,000 respondents about their offering in the implant category.

The company has been investing in clinical education and rebuilding relationships with implantologists. They have had success with their World Implant Symposium and training their sales force, but have experienced turnover in the implant sales force and are working on rebuilding relationships with customers and their referral network. The company is investing in customer education based on survey feedback. There are green shoots in terms of engagement with implantologists and their referral network, but it is taking longer than expected. The conference is now concluded.

The speaker, Simon Campion, thanks everyone for attending the call and reiterates key points. These include the company's focus on driving value through innovation and execution, their confidence in improving execution despite uncertain macro environment, and their upcoming Investor Day. The company will continue to act in the best interest of all stakeholders, and the management team thanks all employees, including those who have departed, for their dedication and work. The conference call ends.

This summary was generated with AI and may contain some inaccuracies.