The operator welcomes listeners to the DENTSPLY SIRONA earnings conference call and introduces the first speaker, Andrea Daley. The company's CEO and CFO will also be present. The earnings press release and slide presentation can be found on the company's website. The speakers remind listeners to read the forward-looking statements and mention that the remarks will be based on non-GAAP financial results. They believe this provides valuable insights into the company's performance. The speakers also refer listeners to the press release for the reconciliation between GAAP and non-GAAP results and note that comparisons will be made to the prior year quarter.

The webcast replay of today's call will be available on the company's website. Simon Campion will provide an overview of Q2 performance and updates on transformation work and new initiatives. Glenn will cover financial results and the outlook for 2024. The company has experienced lower sales in the Connected Technology Solutions segment, but organic growth in other segments. The company is revising its outlook for the full year due to various factors. The company is now entering Phase 2 of its restructuring plan to continue improving efficiencies and driving growth.

Despite the impact of the macro environment on the global dental market, the company remains committed to assessing and adapting its business, investing in high-return categories, and driving sustainable EPS growth. They have identified annualized synergies and have a clear plan to achieve them in the next 12 to 18 months. The Phase 1 and Phase 2 restructuring plans are shaping the company and improving operational performance. These initiatives have helped reestablish positive relationships with stakeholders and are expected to contribute to long-term shareholder value and profitability. Incremental measures are also being planned to further improve profitability and EPS targets.

The company is prioritizing operational initiatives in Phase 1 to improve financial performance and refine organizational structure. They are investing in reshaping their structure, enhancing customer relationships, and strengthening their competitive position through disciplined R&D pipeline management. They are also simplifying their global and regional structure and reevaluating marketing efforts. The company has decided to exit certain countries and reduce external spend and G&A costs. They also plan to consolidate service and support activities, enabled by their ERP transformation, over the next 18 months.

The company's survey results show that they do not have major product gaps and are well-positioned to be a partner for customers worldwide. To unlock the value in their portfolio, they need to develop closer relationships with customers and invest in their own sales channels. They plan to recruit, hire, train, and deploy 100 inside sales reps in the US by the end of Q1 2025 to complement their field-based sales teams and increase their in-office aligner business, particularly with orthodontists.

The company plans to invest in technology and a new e-commerce platform to improve customer service and engagement. They also plan to upgrade their offerings and relationships with distributors to better align with their strategic objectives. The company will continue to invest in new products and software and train their distributors for success.

DENTSPLY SIRONA has issued a nonrenewal notice to Patterson Companies and made organizational and leadership changes in order to achieve cost savings and align with their strategic objectives. Andreas Frank will be leaving the organization, and processes in R&D are being improved to focus on customer needs.

The company has identified $19 million to be reallocated into programs that will improve the dental professionals' experience, accelerate core capabilities, and invest in connected technology platforms. The $3 EPS target is still a goal, but the company acknowledges challenges in the global market. Some of the initiatives will contribute to achieving the target, while the rest will improve competitiveness. The company also plans to return over $100 million to shareholders through share buybacks in the third quarter.

The company plans to return $380 million to shareholders this year through share buybacks and dividends. The second quarter revenue declined by 4.2%, with organic sales down 2.3%. Three out of four segments saw organic growth, but the decline in gross margins was driven by lower volumes, pricing, and unfavorable product mix. Adjusted EPS was down 4%, but operating cash flow doubled due to favorable timing of cash collections and receipt of a foreign tax refund. The company repurchased $150 million of shares and paid $33 million in dividends in the second quarter.

In the second quarter, the company plans to repurchase $100 million of shares without increasing leverage, and intends to return $380 million to shareholders for the full year. They have a strong balance sheet and plan to end the year with a lower leverage ratio. In terms of segment performance, the Essential Dental Solutions segment saw a 1.5% increase in organic sales, driven by steady patient traffic in Europe and the success of their new Endo motor. The Orthodontic and Implant Solutions segment saw a 4.6% increase in organic sales, with double-digit growth in aligners and strong implant growth in China, but a decline in the U.S. and Europe. Legislative changes affected their direct-to-consumer aligner brand, resulting in a revised growth estimate for the full year.

In the second quarter, the value implant segment remained flat due to Turkey's suspension of imports from Israel. However, there was growth in the premium side with the EV family of implants and prosthetic solutions. The CTS segment saw a 4% sequential increase in organic sales, but a 16% decline compared to the previous year. This was due to double-digit declines in E&I and CAD/CAM, as well as a tough comp from the previous year. The equipment market is expected to remain challenging in the second half, but the company has planned actions, including a digital equipment launch, to improve performance. Wellspect HealthCare saw organic sales growth of 11.7%, exceeding expectations. The U.S. saw a decline in organic sales due to lower imaging equipment and wholesale volumes in EDS.

In the second quarter, EDS sales remained flat on a retail basis, with low single-digit growth in U.S. CAD/CAM. Distributor inventory levels decreased by $16 million, in line with normal seasonality. In Europe, organic sales declined due to lower CTS volume, but were partially offset by growth in EDS and Wellspect Healthcare. Rest of World also saw a decline in organic sales due to soft demand for equipment in Japan, Australia, and New Zealand. Due to market dynamics and prolonged macro challenges, the company is revising its full year outlook and taking a cautious view for the remainder of the year.

The company has updated its sales projections for the year, expecting a decrease in organic sales and a slight improvement in gross margin. They also anticipate a decline in adjusted EPS for the third quarter due to a higher tax rate. The company remains confident in its strategic plan, which includes focusing on digitalization, high-growth categories, and profitability. They have made progress in their SKU optimization work, with plans to eliminate 50% of endo and restorative SKUs by 2025.

The company plans to complete most of their initiatives by the end of the year, with a focus on non-revenue SKUs. They have closed distribution and manufacturing sites in the US and will be implementing an ERP system in Europe. They have also announced Phase 2 of their transformation plans and are committed to taking decisive action to improve their business and performance. They aim to become the leading partner for dental professionals and will continue to assess and pivot as needed to reach their goals.

The company experienced continued pressure on their capital equipment business in Q2, but their implants business in China has progressed well. They are investing in their U.S. business and expect growth in the second half of 2024. Their ortho business is their fastest-growing portfolio globally, despite regulatory challenges for Bytes in the U.S. New product launches in endodontics and Wellspect have been successful. The macro environment is not worsening, but the equipment market remains challenging in Germany, parts of Asia, and the U.S. Patient traffic for consumables has been stable, but there has been a decline in some specialty and elective procedures.

The company has seen trends in the U.S. market for aligners and implants confirmed by external surveys. Patients may be less likely to finance specialty procedures in an inflationary environment. The company's 2026 EPS target is still possible, but macro conditions need to improve. The company is taking steps to invest in areas such as orthodontics, inside sales, e-commerce, and streamlining the organization.

The company is focused on transforming into a long-term value provider for shareholders by investing in high-growth categories. They are on track to deliver their plans and are taking additional actions to reach their goal. They have decided not to renew their agreement with Patterson for equipment and are in negotiations for a new agreement that reflects their value and the current environment.

The current contract with Patterson will remain in place for the next 12 months, and the partnership will continue. There will be no changes in dealing with consumables, as the focus is on equipment distribution. In regards to margins, there has been a sequential improvement from Q1 to Q2, and there is expected to be another improvement in Q3 and a significant increase in Q4 due to cost reduction efforts from previous and new restructuring plans. OpEx is expected to continue to decrease in the back half of the year.

The company expects a slight improvement in gross margin in Q3 and another improvement in Q4. They also address challenges in their CTS business and expect improved performance in the second half of the year, with a projected low single digit decline. They mention encouraging retail demand for imaging products and the re-launch of a popular machine in Germany.

The company plans to re-launch a product in Europe and Asia, and is excited about a new product launch. They expect momentum in sales in the second half of the year, with the help of their upcoming event, Q4 seasonality, improved conditions in Germany, and favorable reimbursement trends in Japan. They mention the importance of scanners for their business and had a strong quarter for standalone Primescan and Primescan Connect, but a more challenging one for full-line CEREC scanners.

The company is pleased with the performance of their scanners in Q2 and expects it to continue for the rest of the year. They believe having scanners in the marketplace is crucial for unlocking value in their portfolio. They have seen some pricing pressure on the imaging side of their business, but it has been offset by their EDS portfolio. They have also seen an increase in volume from lower-priced products, such as Primescan Connect. The company also mentions that their business in China is improving, despite the current economic climate.

The company has seen dynamics in its top line and gross margins due to the lower gross margins of its PrimeScan Connect product. They had a strong quarter in China, particularly in the implant business, but expect growth to moderate in the second half of the year. The company also discussed the non-renewal of their agreement with Patterson, which accounts for about 7% of their annual revenues.

Patterson is expected to be in the $275 million range and predominantly operates in the U.S. and Canada, with 70% of sales coming from equipment and 30% from consumables. In comparison, China has a more balanced split of 50-50 between equipment and consumables and half of its revenues come from outside the U.S. The company also works with other distributors and about two-thirds of its total sales come from distribution globally. There was a non-renewal with Patterson, but it is exclusive to the U.S. and Canada and there are still 12 months left on the contract. The company is continuing to invest in its sales force, which may impact the percentage of sales through distribution in the future.

The speaker hopes to reach a new agreement that reflects the current environment and the value DENTSPLY SIRONA brings to Patterson. They are making investments to create their own demand and not rely on distributors. The speaker believes it is their responsibility to create demand and educate customers about their products. The company has taken steps to mitigate the impact of legislation on their sales growth.

Byte has invested in government relations and adjusted internal processes to comply with state regulations on direct-to-consumer aligners. The Byte Plus model is gaining momentum and traction. The slower growth rate is due to the incremental steps and costs for patients to comply with regulations. The company is also looking into potential relationships with other distributors, but the focus is on maintaining a good relationship with Patterson. There is no specific commentary about other distributors, such as Shine, in the prepared remarks.

The speaker discusses the responsibility to create demand and funnel it through appropriate channels, including direct channels and distribution partners. They mention a positive relationship with Schein and Patterson, and the need to discuss terms and conditions with Patterson. They also mention plans to increase efforts with inside sales and e-commerce, and clarify that they will still use distributors for some products.

The speaker discusses the restructuring program and its expected savings of $80 million to $100 million over 12 to 18 months. They clarify that the savings will be used to reach the $3 EPS target and reinvest in the company. The speaker also mentions a shift towards targeting the orthodontic channel with their clear aligner offering.

The speaker discusses the potential for SureSmile in the orthodontist community and the company's plans to tap into this market. They mention that they still have opportunities in the general practitioner channel, but the majority of volume is in the orthodontic specialty space. They believe that their technology and software solutions are compelling and they plan to work on improving the user-friendliness of their software. The company also hopes to become one of the aligner brands used by orthodontists and will focus on getting on their formulary. The commercial structure will remain consistent with other areas where the company has invested.

The company plans to invest more in orthodontic business and target orthodontists. There are some restructuring cost savings included in the updated guide, and headcount reductions will focus on marketing and corporate functions. It may take a few interest rate decreases and improved consumer confidence and patient traffic for the business to see significant improvement.

The speaker discusses various factors that are being considered, including innovation that will be released in the near future. They thank the DENTSPLY SIRONA team for their contributions and commitment to customers. They also mention progress being made in transforming the organization and creating a culture that benefits all stakeholders. The call is then concluded.

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