Straumann Holding AG

Thank you for joining this conference call about Stroman Group's first quarter results for 2024. Please take note of the disclaimer in our media release and on slide two. During this conference, we are going to refer to the presentation slides that were published on our website this morning. As usual, the presentation and discussion will include some forward-looking statements. The conference will follow the usual format. As shown on the agenda on slide three, I will first give you an overview of our strong performance in the first quarter, and then Yang, our CFO, will share details about the financials. After that, I'll provide you with an update on strategic initiatives and our outlook. As always, we will answer your questions at the end of the presentation. Let's start with our highlights and move directly to slide five. We had a solid start into 2024 with revenue of 644 million Swiss francs, based on a dynamic demand in most of our business segments. We achieved a strong organic revenue growth of 15.1% globally, or 8.1% in Swiss francs, taking into account the significant currency headwinds we again faced in the first quarter. Regional growth dynamics vary, with China being the highlight of this quarter, thanks to an exceptional organic growth, but there is a low comparison base. As a reminder, in early 2023, China still suffered from a lot of COVID-19 cases, and many treatments were postponed also due to the anticipated implementation of the volume-based procurement process. The second highlight of this quarter was the official launch of our new IXL premium implant line in North America in March, which I will come back to later. On the orthodontics side, we are continuing to strengthen our ClearCorrect value proposition with the launch of the new ClearPilot 8.0 software, which now provides clinicians with advanced editing tools. With these achievements, And despite the fact that the following comparison quarters this year will be more demanding, together with remaining microeconomical challenges, we are confident to confirm our 2024 outlook. Moving on to slide six, you can see the regional organic revenue growth rates, as well as the percentage of the regional contribution to the overall revenue of the group. EMEA, our largest revenue contributor, showed a solid 5.2% growth, which built on a strong comparison quarter. Firstly, the implantology business continued to drive good results, gaining market share in both the premium and challenger brand segments. Secondly, we are also very pleased with the performance of our business-to-business orthodontic brand, ClearCorrect, which grew double digits in the region. On the challenging side, we still see headwinds in the doctor-led direct-to-consumer business, namely Dr. Smile. This is due to a macroeconomic environment that continues to slow down demand and our strategy shifts from paid marketing to organic demand generation to prioritize profitability over revenue growth. In North America, we achieved positive growth of 3.7% despite the softening market and against last year's solid results. The patient flow has been slowing down versus the past quarters due to the continuing effect of the high interest rates, which impacted spending. We have seen that the consumer weakness that affected the full-arch treatments in the last quarters started to show in a broader range of implantology indications. While we are facing those increased headwinds from a demand standpoint, we are very pleased that we were able to grow through market share gains in both the premium and challenger brand segments. In orthodontics, the improvement of the value proposition of our ClearCorrect brand is generating further traction in the North American market which is a positive signal for further future growth. Looking at Asia Pacific, China significantly drove the exceptional overall growth of the region for the reasons we mentioned before. Looking at the Asia Pacific region outside of China, we are very pleased that we also achieved double-digit growth in already well-established markets, such as Australia and Japan. In addition, new markets like Vietnam and India are picking up fast, and the orthodontics business also contributed to the strong performance in the region, although on a lower scale. Finally, the region Latin America once again showed double-digit organic growth, building on a strong comparison base. As usual, the implant business with the local challenger brand Neodent was the main revenue driver. I'm very pleased that we maintain our positive momentum in Brazil, the largest country in the region, and we're able to continue gaining market share in this market. We also increased our market share in other Latin American countries, especially in Argentina and Peru. In our politics, The ClearCorrect brand delivered an impressive performance, continuing its good momentum in Brazil and growing strongly in most of the Latin American countries. And with this, I hand over to Yang to provide additional details on the financials.

Thank you, Guillaume. Good morning and good afternoon, everyone. Let's move directly to slide eight, where we can see the breakdown of the revenue development. We deliver a solid quarter with 15.1% organic growth. Revenue in Swiss francs was impacted by a negative currency development, mainly related to Euro, US dollar, Japanese yen, Chinese renminbi, and other emerging market currencies, which amounted to 43 million Swiss francs. The M&A effect, which comes from acquisition of distributors in the Baltics and in Poland, as well as a light star, added 7 million, bringing the adjusted revenue base to 559 million Swiss francs. In the center of the chart, you can see how the regions contributed to the overall growth. EMEA showed solid growth in the first quarter, with our B2B business continuing to perform and gain market share. The overall performance was partially offset by our doctor-led direct-to-consumer business in the region. As already mentioned, we were able to grow and increase our shares in North America despite a softening market. Our overall growth was boosted by performance in Asia Pacific. The region contributed to 70% of overall group growth in this quarter. The Latin American region kept growing double digit, building upon a very high growth base in the prior year. Slide 9 leads us to our performance by business overview. In all B2B areas, the good momentum continued. In premium implantology, we achieved double-digit growth, driven partially by the strong performance in China. The challenge of brands continued to expand with the strong growth across all regions and all brands. with Neodon standing out as the largest contributor, followed by good performance of both Antogia and Medentica in their respective markets. In orthodontics, the two dynamics continued. Our B2B brand, ClearCorrect, once again grew double digits thanks to its enhanced value proposition, as well as training and educational efforts across various markets. Our doctor-led, direct-to-consumer business, Dr. Smile, continue to face headwinds. We have changed our strategy from paid marketing to organic demand generation to practice profitability over revenue growth. Our other direct-to-consumer business, Anxin, a Japanese concierge service which helps to raise awareness of implant treatments and connects patients with clinicians, is performing very well. Our digital business also contributed to the group's overall performance and grew double-digit, supported by our broadened products and services offerings, and enhanced by our latest acquisition, AlightStar. And with this, I give back to Guillaume.

Thank you, Yang. Let's talk about our achievements and strategy and move directly to slide 11. As a reminder, our existing addressable market grew to more than 19 billion Swiss francs in 2023, and our strategy compass, together with our key focus on innovation, education, and clinical evidence, will help us to unlock those opportunities. A critical aspect of the implantology segment is the fact that it is still significantly underpenetrated. This is visualized on slide 12, where you can see the penetration rates of selected countries in different regions. With many surgically trained dentists and a high DSO presence, Spain is a good benchmark to evaluate the average penetration of implant treatments. Looking at Europe, Germany, France, and Italy are seen as the major markets and still have low penetration rates compared to Spain, while the UK is even significantly lower, highlighting the important growth opportunity that remains in this region. In the US, the critical market, the penetration rate is only about half of the Spanish market, which confirms also its huge yet untapped potential. And finally, looking into APAC, China still remains heavily underpenetrated, even though the patient flow significantly increased following the recent introduction of the volume-based procurement process. While we see penetration increasing in many geographies, we keep on improving education and access to care, This is an important way to transform those under-penetrated market opportunities into real growth. Now, let's move on to slide 13 to elaborate on the focus area of innovation. During the Academy of OCO Integration Congress in March, we introduced iXcel, our new high-performance premium implant system in North America. This launch underpins our consistent innovation dynamic, which has been in the DNA of the Stroman brand for the past 70 years. IXL combines four implant lines in one system with a unified prosthetic platform and a single connection supported by one instrument set. This increases the clinical performance of our customers and, in the meantime, simplify processes and inventories in dental practices. We received very positive first feedback from clinicians who have already started to use our new IXL implant system. I am confident that this innovation will continue to expand our leading position in the premium segment and help size opportunities in the field of apically and fully tapered implants. On slide 14, I would like to speak about our challenger brands, which continue to expand in existing markets and also entered new countries. Antogea, who is strongly in China, benefiting from the VVP effect and also entered new markets like Turkey and Vietnam. On the other hand, Neodent, as the leading global challenger brand, grew strongly across all regions and continued to tap the huge market potential in Asia-Pacific. The new education center, which we recently opened in Malaysia, will be an important support to increase market penetration in those geographies. Looking at the growth potential, Asia-Pacific goes far beyond China. We believe there is plenty of growth opportunity in major markets like Australia, as well as in under-penetrated markets such as India and Southeast Asia, where challenger brands like Neodent grew strongly. Let's move to slide 15. In the first quarter, our intraoral scanner AlightStar was launched in China in a phased approach. To boost our commercial execution, we built a dedicated digital sales team and added several distributors to the existing channels. With this launch, we are now able to offer our customers in China a competitive intraoral scanner solution. As a reminder, intraoral scanners are of strategic importance for our customer journey as they are the entry point of the digital workflow. In the near future, all our scanners are going to be seamlessly connected to our cloud-based digital platform, Stroman Access, which I would like to talk about on slide 16. Digital transformation is changing the general industry, which is why we are continuing to invest heavily in building the global customer platform from an access. In the first quarter, we made significant progress on the infrastructure side. I'm pleased to report that we achieved the ISO 27001 certification for Stroman Access Platform, the world's best known standard for information security management. Our platform adheres to many security and privacy standards, including the General Data Protection Regulation in the EU, and the Health Insurance Portability and Accountability Act, called HIPAA, in the US. Those certifications underscore our commitment to maintaining the highest quality standards and ensuring the protection of sensitive information. The Stroman Access platform is now technically set up for all regions except China, fulfilling a broad spectrum of digital regional requirements to support customer needs. With this, Stroman solutions and services are being added to the platform in a phased approach to prepare for the launches in the different regions. Now let's have a closer look at our orthodontics business to business on slide 70. As mentioned, we strengthened our presence in existing markets and achieved double-digit growth with our ClearCorrect brand. I am delighted that more and more specialists are trusting our improved treatment platform expertise and our upgraded software capabilities. To drive future growth, We further invested in the following three dimensions to be successful in the ClearAligner segment. Technology, services, and commercialization. Firstly, ClearCorrect further improved its aligner value proposition by launching the ClearPilot 8.0 software, which provides clinicians globally with new advanced editing tools that allow them to better visualize potential treatment outcomes. Secondly, we invested in services and expertise. The new Shared Services Center in Costa Rica, which reflects the rapid growth of ClearPract, ramped up and offers treatment planning for customers in both Latin America and North America. Thirdly, we invested in commercialization. We strengthened our distribution team and launched a global auto sales academy introducing an agile learning framework for all our ClearCorrect 3.3 managers. With this, let's move to slide 18. In early 2024, we continued to make considerable investments in future growth. Firstly, we invested in additional capacity at our various sites, from Andover in the US to Villeray in Switzerland. We are also making good progress at our China campus in Shanghai, which will host manufacturing, education, and innovation teams. The construction work was completed in only 18 months, and we have already started preparations and test runs for registration purposes to match the production start schedule for early 2026. Secondly, We also made important investments in technology. We continued building the infrastructure of Troman Access, as mentioned earlier, and continued to improve the customer experience workflow by seamlessly connecting our new intraoral scanner, Ally Star, to the platform. Further, we continued to invest in people as they are the key to success and the ultimate lever to deliver performance. We strengthened our distribution channel in all regions and hired people in manufacturing. In addition, we are convinced that investing in internal training and developing new skill sets for our team members worldwide lays a solid foundation for the future. This is why we continue the series of cultural programs and our edge-up initiatives with the objective to foster a digital mindset in our organization globally that will help us to become the digital power oral care company we aspire to be. And that brings me to our 2024 outlook on slide 20. On the one hand, we expect macroeconomic uncertainties to continue to impact consumer demand in different geographies, which will lead to different regional dynamics in upcoming quarters. Nevertheless, Thanks to our differentiated value proposition, combined with the strong execution power from all teams worldwide, we are confident that we will continue to gain market share within our global addressable market of more than 19 billion Swiss francs. Geographically, we are more diverse than ever. We cater to all price points, and thanks to our continued education efforts, more and more clinicians are able to perform implants and orthodontic procedures. Last but not least, we continue to invest in growth and transformation to maintain our competitive edge in the future. As a result, we confirm our outlook for 2024, which is organic revenue growth in the high single digit percentage range and profitability at around 26% at constant 2023 currency rates or between 24 and 25% including expected ethics headwinds. And with this, I would like to open the question and answer session. If you have a question, please press star and one on your phone to join the queue. As usual, we kindly ask you to limit the number of your questions to two in order to give all the participants a chance to ask their questions within the available time. Can we have the first question, please?

Of course, the first question from the phone comes from Daniel Yelovkan. Please go ahead, sir.

Yeah, good morning from my side. Obviously, the burning question today is the market reaction on U.S. slowdown. I mean, in the past, you always argued that as long as unemployment rate is low, it doesn't really have an effect. You mentioned the higher interest rates. today and also when I look at other indexes like all the consumer indexes like the Michigan, they're all quite high, I would say, quite good. So I'm really a little bit puzzled about the slowdown in the implants market in general, just trying to figure out more granularity. I mean, I guess you mentioned that for yourself that the digital offering was very strong in Q1 23 and now weaker so that this combination also played a role. So I wonder if your implant business was probably a bit better than the three spots, seven constant currencies you published today so that I think you get my point, thanks.

Yeah, thanks Daniel. Yeah, indeed. Actually, you get the answer because the NAM perceived slowdown is coming from two major factors. The first one is related to implant demand. You know, I think we have said that the North American market has been pretty resilient until now to inflation and high interest rates when we see all the past quarter's performances. Now, as expressed also in the past quarter's communication, those high interest rates have impacted patient spending, and as a consequence, have reduced patient demand. First, for large reconstruction, as also I think we have been commenting on a regular basis since the second quarter last year. But we have now also seen through our customers, with whom we have a lot of, of course, communication and exchanges, that it has reduced some patient demand for smaller indications. And this is where we have seen then that the market overall dynamic has been then slowing down. This is in what we are seeing not a dramatic shift, and the slowdown is mainly seen versus previous year, because this has been that impact sequentially quarter by quarter. But when we look at Q4, we don't see a major change. The second factor is the digital business segment, as you expressed. The first quarter is not the quarter for strong equipment sales. And therefore, it did not boost net sales as we have had in the fourth quarter last year, for example. Now, that's why we believe that with our future Lightstar iOS, which will be launched in the third quarter, we are confident that the digital segment will continue to support our North America top-line growth. But those are the two major impacts that is explaining the current Q1 performance in North America.

Okay, thank you.

The next question from the phone comes from Hassan Al-Wakil with Barclays. Please go ahead.

Thank you for taking my questions. A couple for me, please. Firstly, following up on North America, do you think the softness on the single tooth side will be prolonged, similar to what we've seen with Full Arch nearly approaching a year now? And to that end, I mean, do you expect a benefit from lapping the weakness on the full arch in Q2? And ultimately, do you expect a recovery in the growth rate in North America over the course of the year? And is that assumed in guidance? And then secondly, to what extent is a softer North America and a stronger APAC, particularly post-VVP, a headwind to your margin in the first half? and over the course of the year, and what offsets do you have here? Thank you.

Yeah, if we look at, again, the North American perspective, you know, we are talking about those high interest rates that are impacting demand, and especially we are talking the full launch. We don't expect patient flow to deteriorate further because it has been slowly, step by step. We don't think it will deteriorate more sequentially in the coming quarters, therefore staying rather stable. To see an improvement on full art or, let's say, increase market growth overall, I think we will need to have some better high interest rate situation or interest rate situation for people to feel that they are confident to spend some larger ticket when it comes to dental care. which means that we believe that we will continue to gain share, meaning that even if the market is less supportive than it was previous year, then we will continue to deliver growth higher than the total market, which is indeed included in our guidance. We believe also that our digital equipment business will support the overall regional growth on a quarter-by-quarter basis because that's where more in the second half that the equipment sales is coming into place. And that's a little bit of perspective that we have, and then that's why we are seeing that North America will still be a growth provider for the quarter to come. When it comes to margin, yeah, I think we have indeed a faster growth in China and lower than planned in North America, but this was also somewhat included in our guidance, and we don't see any major impact with regard to what we have already planned for full year 2024.

Very helpful. Appreciate the comments. If I could just follow up just on the first question with regards to the improvement in North America. I mean, could IXL support that improvement in growth from here?

Yeah, of course. That's why we are saying that we are going to grow faster than the market. I think that's a very good point. While the IXL specific sales will be step-by-step increasing because we know that dental professionals are still conservative, then they take time to adopt new technology. This is opening doors also of competitor accounts, as we are seeing, again, as we speak, allowing us to grow faster than the total market. And while I believe that the IXL per se will have only a limited impact in the P&L and in the top line growth of North America directly, it will have indirectly, thanks to opening additional doors for our entire portfolio, help us to get to a solid growth in North America again in 2024.

Perfect. Thank you.

The next question from the phone comes from Maya Stefani Pataki with Capital Shrew. Please go ahead.

Hi, good morning. Thanks for taking my questions. And I will start with a follow-up on North America as well. I'm really sorry, Guillaume, that we're going to give you here a hard time, but I'm still a bit puzzled about your explanation on the interest rate environment. Of course, it has a negative impact on consumer sentiment. Nevertheless, as Donny pointed out rightly so, you look at the different kinds of consumer indices within the US, and they have been fairly stable over the last 12 months so how do you explain that we're now starting to see the the slow down in the patient flow for the single tooth replacement and maybe can you share with us what percentage of treatments you think are credit financed you know where just to get a feeling for how how much of an impact that could have that's my first question my second question would be on Europe I mean We are soon starting to see an annualization of your active decision to stop the active promotion of the direct-to-consumer business, Dr. Smile. Do you anticipate that growth will stabilize once we've seen the annualization, or do you still anticipate Dr. Smile sales to decline throughout the year? Thank you very much.

Thanks, Pierre. Yeah, no worries to come at North America as this is an important point. But once again, I think it's interesting because you are mentioning consumer confidence. And I said, I think in many, many quarters that our top line in growth is not linked to consumer confidence when it comes to the implant side in North America. If it would have been the case, we would have decreased very significantly in 2022 when we have a big drop. And actually, it has not been the case. Then, yeah, I think the relation to consumer confidence that there is no change versus the past quarters, I think it's actually having no correlation with our direct demand. And this is what we can look at in our total net implant sales in North America for the past 36 months. The second thing that we can also express is that we have hard data on the market side, as we are expressing very often. And we have seen that market decline or market deterioration in volume on the quarter by quarter sequentially during 2023. This is why we were able to comment that we were seeing first those larger construction and afterwards moving further some of the smaller indication. And it's really based on market data that were explaining this factor much more than first our own performance. Thirdly, when it comes to financing, I think there is a lot of our implant then procedures that are financed. Of course, all of them when it comes to full arch reconstruction. A large part of them when it comes to smaller indications that to a lesser extent, but still I think as it's entirely then co-payment, entirely payment by the patient. then you have this large category of the population that are going through the financing. This is explaining also a little bit the fact that there is less resilience as we speak with regard to the high interest rate that we had at the beginning of 2022. That's what we have seen on the marketplace, and I think it's correlated with what our customers are also expressing from a patient flow standpoint. When it comes to direct-to-consumer in Europe, which is our second pain point beside all the positive points that we are in our Q1 performance, and I still want to reiterate that I think Asia-Pacific and still Europe and Latin America has quite performed very strongly, then our direct-to-consumer is facing this kind of crisis. lesser demand from the young urban segment that we are attracting with Dr. Smile for the time being. We are also then significantly changed our strategy from paid marketing to organic traffic generation as Yang also explained in the presentation, which is, of course, driving less marketing efficiency at the end. Then while we are looking for improving our current top-line performances, we will not change our strategy over 2024 and we'll continue to pursue a profitability strategy, meaning at the cost of the top-line situation.

Got it. Thank you.

The next question comes from Graham Doyle with UBS. Please go ahead.

Morning. Thanks a lot, guys. Would you be able to just give us a better sense in terms of growth between the value and premium sides of the portfolio? And if you could, just give us a sense as to what that splits out of geographically, maybe in Europe and the U.S., just to understand if there's some sort of trading down or if value is growing particularly fast relative to premiums. And then a second question just on China. We've seen in other categories, such as in orthopedic implants, that after sort of three years, there's been another sort of tender process starting up for VBP sort of 2.0. Is that something you're expecting here? Would you expect the government to focus on something other than price? Thank you.

Yeah, good question. Also, when you look at the global Stroman Implant business, we have double-digit growth on both premium and challenger. And we are really pretty pleased to still see that both of our critical segments of this business are then getting the traction that we need for pushing our overall growth. Now, of course, it's different from region to region where we see a lot of premium development in Asia Pacific thanks to China, but we see positive growth also in our key critical developed regions like North America and the EMEA. For us, it's very positive from that standpoint because we actually don't see trading between the premium going to Challenger for the time being. We are, on the other side, seeing that, for example, this slower trend that we have seen in North America is applicable and has been applied to both segments, challenger and premium, meaning that we don't see that as a result of premium sales going to the challenger segments. When it comes to the China situation, indeed, there will be then an over volume-based procurement process, potentially in end of 2026, beginning of, yeah, 2027. It's not sure yet because it has not been announced, but it's indeed a kind of a three years period. And we are expecting the Chinese authorities to look at, as always, then pricing, but much more especially trying to support domestic manufacturing. That's why We are pretty pleased to have taken already years ago the decision to manufacture our different part of our portfolio in China, which was at the moment of our decision to cope with potential supply chain disruption as we have seen with the COVID-19. but which finally then come out as being very beneficial for potential future regulation of the Chinese market. Then we believe we will be ready for still being in a good position to answer the different requirements from the Chinese authorities when the new VVP will be put in place.

Great. Thanks very much, guys.

The next question comes from Richard Fulton with Goldman Sachs. Please go ahead, sir.

Thank you. Good morning. Two questions for me, please. First of all, in China, have you seen any competitive shifts in the competitive environment in that market? It looks like since the implementation of VBP that Strandwind gained a lot of shares. I'm interested to hear if competitors are now adjusting their behavior in response. And then secondly, a follow-up on Dr. Smile and Amir. Is it possible to quantify how much of a headwind Dr. Smile was to growth in that region in Q1, please? Thank you.

Yeah, China is obviously a really... success, let's say, for the group, for the time being. On the one side, I want to highlight two sides. I think, one, the agility of adapting to the new situation very quickly, which is linked to, I would say, the agility and high performance player learner culture that we are creating in order not to fight against the thing you cannot control, but being able to adapt quickly to new kind of regulation and especially focusing on the customer need that I've been seeing a lot of patients coming in and giving them the means for them to be able to absorb this growth opportunity and help them actually to recreate some profitability at their clinical side because they had also to decrease their pricing by 50% and they need to have strong partner helping them to face also for them this kind of very strong changes And we have been seen as a very strong partner to help them quickly to support this patient flow and getting back to a better financial situation at the end of 2023. The second factor of this success has been the flexibility in operation. We have shipped twice as much implant in 2023 in China that we have done in 2022. And we are going to also deliver very significant volume growth. Then it means that the operation had to really adapt very quickly to the situation and making sure that we can deliver on expectations. And this is a Again, a lot of work as we speak in order to be seen as a very strong partner moving forward. Then on the competition side, I think we have seen competitors trying to react, but on the one side, decreasing prices is not so easy because you are facing the challenge of having much less gross margin already through the VVP approach. You can try to differentiate by lower price to a customer, but it will keep deteriorating your P&L for all the different competitors. And the second side also is that the clinicians are looking at trying to sell or to upsell customers and patients because when you are coming in a practice, the highest potential sales price that you can do will also allow you to have the biggest potential high gross margin in absolute term, which is help you to cover all your structural costs. Then the price lever that was a strong one in China in the past, it's a little bit less the case with regard to the situation clinical practice are facing as we speak. Then we have seen some movement of the competitors, but nothing so far that has been limiting our capability to gain share and to keep growing number of customers to help them also then driving their successful on the clinical end on the business side. When it comes to Dr. Smile, could you, Richard, tell me the question again?

Yeah, I was just wondering if you could quantify how much of a headwind Dr. Smile was for EMEA growth in Q1, please.

We don't disclose this detail from all our different business segments, but I would say, as we have expressed in the fourth quarter, we said that EMEA would have been in icing leachate growth if you removed the Dr. Smile impact.

Got it. Thank you very much.

Next question comes from Julien Dubois with Jefferies. Please go ahead.

Hi. Good morning, Yung. Good morning, Ying. Thanks for taking my questions. I have two. The first one is coming back to Europe, which remains your main region. I think we're also pretty surprised to see the discrepancy between the slowdown in the US and Europe holding up pretty nicely. And as you just said, that would have been high single-digit growth without Dr. Smile. So any reason you could flag for Europe to remain that steady at the moment? And also because this is the only region where the comps are getting easier as we progress in 2024, could we see an acceleration of growth in the region? Also considering that Dr. Smile will probably anniversary or the weakness of Dr. Smile with anniversary going forward. So a quick focus on Europe would be good. And the second question is on APAC. You have now sales on an absolute basis that have been hovering around, let's say 130 million three strength in the past three quarters. So what should we expect going forward? Could we see meaningful growth compared to that? What seems like a new normal? Or would you expect some sort of phase of absorption of the extraordinary growth you've been delivering, particularly in China?

Yes, thank you. I would say when it comes to EMEA, we are very pleased with growth that has been posted by the team. If you are looking at those rather mature markets and they are able to leverage the entire portfolio, be it premium, challenger, orthodontics, and digital. You know, the difference with North America is also linked to the culture in between the two continents. When you are in the U.S., consumers are a lot leaving for credit. And high interest rates had much more impact on North America than it has on Europe and EMEA. And we have also flagged that last year. I think why we started to see some slowdown in terms of larger constructions in terms of patients seeking treatment, it was always related to spending capacity being impacted by higher interest rates with regard to the fact that a lot of American households are really living through credit, which is not at all the same in EMEA. And this is why those interest rates are actually not so much impacting our own business, but much more, much larger, much larger purchase. Like, you know, if you look at real estate, then you see really the impact on high interest rates in Europe, also linked to the lower capacity of taking then credit. Then that's the major difference that you see in between the two different regions. It's from a consumer spending patterns. One is impacting, the other one is much less. How do we see the growth in EMEA moving forward? I think, again, looking at them delivering in line with what they have done, I think the impact of Dr. Smile will continue to be there to a lower extent, potentially. But still, I think we are really definitely considering then pushing this business model to profitability. Therefore, for us, the top line is not the most important, and they will still be in effect during the rest of the year. Coming to Asia-Pacific, yeah, I think Asia-Pacific, as we expressed, we believe that if you take everything equal, which is not at all the case for the time being because of the comparison period, which is very different from quarter to quarter because of those past years, COVID-19 effect and also VBP effect, We believe that it has the potential to be at a caterer of 15% to 20% in the next 24 months. This is what we have said in the mid last year. We still consider that Asia Pacific has that possibility to be a strong growth provider in the quarter to come.

Thank you. And maybe just as a follow-up, Because the comps are getting easier in Europe, do you think we could see acceleration from what you delivered in Q1?

In Europe, you know, I will not comment quarter by quarter, Julien, on this one. We are still really thinking that we are able to deliver the same level of growth as what we have done in the past quarters, and we see very solid EMEA. I think we are not going to start planning on a quarterly basis.

Okay, thank you very much.

Next question from the phone comes from Veronica Dubajova with Citi. Please go ahead, madam.

Hi, guys, and thank you for taking my questions. Please, can I... circle back first to the U.S. commentary that you've made. If you can just talk through the progression that you saw through the quarter. So is this a market that started off very weak in January and then improved in February or March, or was it the other way around? If you can just talk through some of that consumer softness that you're flagging, how did that progress and evolve through P1? And then I have a bigger term question. On the 2030 markets, obviously, you have expressed desire to have a substantially larger clear aligner business than you have at the moment. If I remember correctly, you were sort of talking about something potentially to the tune of 1.5 billion out of the five. Just kind of curious, given what's happened with Dr. Smile and where you are with ClearCorrect and just the overall macroeconomic environment, your degree of confidence in that ambition as it stands today. And I guess, you know, as we think about not just the next quarter or the two quarters after that, but really kind of fast forward through 25 to 30, what do you think you need to do to get within reach of that clear aligner ambition that you articulated that forms that long-term plan? Thank you so much, guys.

Yeah, when it comes to North America, we have not seen a very significant change quarter by quarter. And that's why we think that we will see a pretty stable demand. That's the difference is mainly versus than previous year. Then that's why we believe that the stability of this market is still there versus where we are right now. When it comes to clear aligners, then yeah, we are still very... We are still very... I would say, excited and especially expecting very high growth moving forward for the future. Of course, it will come less from the direct to consumer business model that we were thinking two years ago than from the B2B side. We are seeing significant acceleration on the B2B side now for quite some quarters, And then we really think that we're on the right track to be able to generate a very meaningful business of ClearLiner in the years to come. We still invest significantly in all the three dimensions as we expressed. You know, we have the technology side where I think we are getting really close to what we need and we have started then having now ortho specialists working with us, which is what we were really intending to do in order to unlock this biggest part of the clear liner market for us. Then we are investing significantly in expertise and treatment planning. And I expressed our new Costa Rica treatment center, which is completing the other ones that we are doing. And we are also then investing in commercialization. That was where we were refraining us to do too much before adding the right value proposition. And when we look at the long-term perspective, we are still then seeing Clearliner as a very significant provider of growth in both percentage and absolute value in order to reach our 2030 goal.

But, Guillaume, if I could just follow up on that, I guess if I look at the business, I mean, it's probably 300 million Swiss francs at the moment. To get to 1.5 billion, $1.5 billion, you need to start growing the business at a sort of 30% kicker starting this year. I guess I'm curious, are you still comfortable in that $1.5 billion, but you're saying that growth really picks up at $25 billion or $26 billion? And given that you've seen the softness in the direct-to-consumer business, is the $1.5 billion still the right number, or do we need to start thinking about that figure differently?

Veronica, when we are saying one, we are not guiding an absolute number for 2030. Then it was a directional number. Then we are still, if it's not 1.4, it might be a little bit lower. It might be a little bit higher, depending on what kind of global strategy we are taking for ClearLiner. Then I think this is the way you have to look into this. We still are confident from the 2030 guidance that we have given overall, and we have never guided very precisely on what will be the contribution of every different business segment. then that's why we are saying that we are very confident in our ClearLiner business, even though it might be not at exactly the same level we are having in our planning, but there are a lot of different ways to grow this business, and we are really looking at delivering in line with our expectations, also on our global guidance for 2030, but especially on the ClearLiner side. Understood.

I had to try. Thank you so much, Guillaume. Have a good one.

No worries, Veronica. That's part of the game.

The next question from the phone comes from Anshal Verma with JP Morgan. Please go ahead, madam.

Hi, good morning. This is Anshal Verma from JP Morgan on behalf of David Ellington. I have one question, please. Within for the group, how much did pricing contribute to growth overall? And then more specifically, could you also highlight the dynamics for EMEA? And are we able to share how much did pricing in Turkey contribute to the EMEA organic growth?

Yes, I think we are not disclosing those details about the pricing, especially in Turkey in a specific region. But obviously, it has an impact based on the ethics rate. But as you can see, it is not preventing us from presenting strong performance for the EMEA region. When it comes to the global performance on pricing, We are low single digit. That's what we always said. We have done price increase of 2% that we have announced then at the end of last year. And we do look at realizing those 2% by the end of the year.

And obviously, this has a China impact year over year as well. So this 2% is excluding China. Mm-hmm.

Perfect.

Next question comes from Hugo Solveig with PNP Paribas. Please go ahead.

Hi, hello. Thank you for taking my questions. I have two. First on China, please. Can you maybe give us some details on current trading as you analyze VBP in Q2? And just to clarify, Guillaume, when you mentioned the 15% to 20%, is that on a full year basis or quarter after quarter for growth? And second, I'd like to come back on profitability. your commentary around the premium implants being the main driver for growth, yet most of those sales coming from China. So can you elaborate for us on the implications for Margin and remind us of the phasing that you expect for 2024? Thank you.

Yeah. China, we are saying as soon as we will have, we express the 15 to 20% growth as soon as you can compare quarter to quarter. That means it's going to start by the beginning of the third quarter, the second half. than this year, where we will not have any effect of VBP, of pent-up demand, on COVID crisis. And that's the way you have to look into this. We have also then added this kind of perspective, if you can really measure, you know, apple with apple. And we know that the quarter of 2023 has been significantly impacted when it comes to growth rate, because we started with minus 23% in Q1, and we ended up with plus 40%, if I remember well, Asia Pacific Q4. Then we still have a big swing to compare with, with an easy comparison period at the beginning of the year, and of course a much tougher at the end. But still, I think if we look at absolute value, we believe that the second half in China is representing more or less, a little bit more the kind of regular business activities, and this is where we think we can be compared with. The second question was,

On the margin, the gross margin?

Yes, do you want to comment on that? Yeah, go ahead.

Okay, yeah, sure. Now, of course, there's naturally a gross margin headwinds if you look at specific in 2024 because of China versus other markets mixed. However, as you know, as we continue to grow our top line, we do expect that we continue to expand our bottom line mainly due to operational leverage. We also believe that because of a global portfolio and also the overall low industry penetration, that will support our geographically balanced growth. So all those is fully embedded in our four-year guidance. So operationally, we continue to look to expand our EBIT percentage as well. Just a reminder, Hugo, as you know, that in the second half of the year, the China pricing was stabilized versus a year ago.

Okay, thank you. That's very helpful.

Next question comes from Julien Wadu with Bank of America. Please go ahead.

Thank you very much for squeezing me in. So I just want to jump back on the US quickly to understand the argument about the financing What I don't understand is just the difference in momentum between the improvement we've seen for the clear aligners based on your comments and also the peers' comments recently, and the softer demand for InBus Energy. Just if you can help me to understand at least the difference here. The second question is, I think when you issued the guidance for the year for the high single-digit organic growth, you said that emea and north america should also be within the guidance uh as well so could you confirm also that like the two regions despite the sort of slightly weaker quarter like they expected could also be within the guidance and and the last point is on uh ebit margin so it's uh i mean the the 24 to 25 percent margin includes one to two percent fx headwind uh fx rates have moved like quite a lot recently and it seems that it's a bit more favorable for for you so you've decided not to upgrade the guidance but could we say that at the an occurrence spot should have like a bit more uh better margin than uh than what is in the guidance thanks

Yeah, I think good point also, happy to comment the clear liner versus implant trend in North America. Then as you may remind, I think this is something which is important, we are not at all then starting from the same place. clear-liner has been not resilient at all with this inflation and those interest rate situation, then they decline significantly, or at least they had a very adverse micro-economical situation which impacted significantly the market. And you should go then to the same competitor you are talking about to their previous quarter performance to see that it has been nothing close to what has been the implant numbers reported in the past quarter as well. Then demand has been really then behaving very differently. The clear liner market has been significantly impacted and as it comes back from a much lower level, then we see a sequential improvement because people are getting back on then a better consumer confidence. And I think consumer confidence is a good proxy or a better proxy for clear liners where we have seen that it has been pretty close to what we have seen on the global market standpoint. On the implant side, it has been then very different because the implant demand has been really resilient on that past period of inflation and high interest rates. Then at the moment, we have seen step by step that the interest rates are not decreasing, giving a little bit more relief to U.S. households. We see also that the impact of the subsidies that have been given by the Biden government to support consumption during the all healthier than in 2023 has been really, you know, helping people to continue consuming. But we still see now that it has a different trend. And that's where I would say you can compare then the two segments. And that's why we see also an improvement on our clear liner business sequentially in North America versus the demand that we see on the implant side.

Yes, so on the FX area, as you have seen, it is indeed sequentially easing a little bit versus quarter four for some of the currencies. However, year-over-year, we're still staying at a quite highly elevated level. So for quarter one, the revenue side alone, we are seeing more than 700 basis point of impact. So if the FX were to To stay as it is today, we could see that the impact could ease toward the second half of the year, but it's really hard to tell until we get to that. So I would say right now our margin guidance is still the same. We see constant 2023 rates, so if the effects were to stay at last year's level, we target to deliver 26% of the EBITDA margin, and that is margin expansion almost 100 basis point. And for now, I would say the margin is still within the range that we guided for. That is between 100 to 200 business point of FX hit on the bottom line.

Thank you very much. Just on the second question, EMEA and North America, let's say being in line with the high single-digit guidance, do you also confirm it for the EMEA?

We don't guide per region. We are just making sure that we will deliver our high single-digit growth for the overall organization, and we do believe that both regions will contribute positively to achieving this goal. Perfect. Thank you very much.

The next question comes from Robert Davis with Morgan Stanley. Please go ahead.

Yes, morning. Thanks for taking my questions. My first one was on the 2030 target of $5 billion. I just wonder if you could walk us through your thoughts in terms of contributions to that number from acquisitions versus the sort of organic targets. That was my first question. The second one was just could you give us the APAC growth excluding China in the quarter? And then finally, just in terms of timing of the roll-off of the headwind from Dr. Smile, Maybe I missed that on the call earlier, if you could just clarify that, thank you.

Yes, when it comes to then our 2030 guidance, we said that we have the objective to get there also potentially from our organic growth then directly, which was then just reaching low double digit top line growth in order to get there, then we have not included any M&A, but obviously some M&A will be also helping in case we are considering going there. When it comes to APAC, then APAC excluding China is also having a really significant growth. We are high single digit, very close to double, and we are really pleased with especially then our more mature market like Japan and Australia, which are representing the most, which are being able to deliver then double digit as we expressed then in the presentation. When it comes to Dr. Smile, I think we expressed the fact that Dr. Smile is facing, well, there are two factors for explaining the current Dr. Smile performance. It's the one side, then the other. the market demand, which is a lower for those kind of aesthetic treatment for the online business model. And the second one is then the fact that we are really pushing the model to profitability and not to net sales growth. And for this, then there is more investment on our side to organic traffic, which is taking more time to establish than paid marketing that have an immediate results. And then we are looking at being able to drive performance and profitability over time, and this accepting some lower top line related to that strategic decision.

That's helpful. Thank you very much.

The next question comes from Oliver Metzger with OdoBHF. Please go ahead.

Good morning. Thanks a lot for taking my question. The first one is about the weakness of dental implant demand. Historically, the dental implant industry has struggled to find a real explanation which link exists between the economic environment and the dental internal market. So your comment on the interest rates could also be fit more in this old explanation scheme. Have you evaluated some scenarios that the dental internal market might become more late cycle and the weakness might last longer similar to a time of let's say 2011, 2012? when the economy already picked up but the demand for dental implants remained low and second basically it's also linked to my first question in in this context you mentioned that the penetration rate which has improved a lot over last years but still low in absolute terms how do you think about the fundamental drivers for market are like the education of dentists or awareness patients um Do these reasons make you confident that the recovery of the market will come earlier than later, also in contrast to the start of the last decade? Thank you.

Yeah, I think coming to the overall explanation of market demand recovery or at least slowdown and recovery, then I still believe that what happened in 10 years ago, I think your comment is referring much more to our own situation where the demand took time to come back, but the market has been much more dynamic and I think the market really quickly come back, but in regions where we were not strong enough and especially in market segments where we were not represented. Ten years ago, we were only premium, mainly Europe, and we were having a much lower presence in North America and, well, almost just the beginning of our story in Asia-Pacific. Then the Stroman Business Premium took a lot of time to get back on track because of its low representation is the fastest growing geographies that have been North America and that has been then Asia Pacific and also more on the challenger brands, especially coming from Asia Pacific and Latin America where we were having very limited businesses. I think the situation for this year is very different. That's also one of the reasons why we are able to post 15% growth. When you look at our challenger brands, we are growing also double-digit, which is mainly coming from all the different regions added all together. Then we have that dynamic coming from our geographical split. And we believe that North America will also be able to respond and to rebound quite quickly when the interest rate will deliver a better outcome for the available discretionary income that households can use. This is what we have seen also post-COVID, where the market rebounded the fastest in North America and Asia Pacific. And this is what really, I believe, will happen also for North America this year, especially to the fact that we are also catering to all different price segments. also in this region. And I think, as you know, one of the big drivers of growth in North America are the DSOs. Many of them are also using our challenger brands, and we believe that the DSO will also then be able to boost significantly volume as soon as they will see a major capacity to get patient conversions. The second question was, sorry, could you ask me again?

Yes, it was just about fundamental drivers.

Yes, that's right. Fundamental driver then for our influence business is threefold. I think the first one is obviously education. We still have a lot of general practitioners that are not placing implants. It has increased very significantly. We are, generally speaking, using those numbers, saying that 10 to 15 years ago, it was only 15% of GPs that were placing implants. We believe that we are reaching almost half of them. in between 40 to 50% depending on their geographies, but you still have 50% of general practitioners that are not placing implants and that are often sometimes not offering that alternative. And this is one of the largest options for growing demand. A lot also in not mature market where we have a lot of education to be done, Southeast Asia as an example, China also as an example, but also a lot of practitioner in North America are now placing and are currently then being trained by us as companies. The second is, of course, patient awareness and price level. I think the price level in many geographies are then a limitator of volume than growth. We have seen that elasticity actually in the Chinese market as an excellent example. We know that implants are completely paid by the patients with some private insurance reimbursement to, I would say, to different percentage, depending on the countries and the insurance companies. but there is still a large copayment to be done by the patient, then the price level is also something that would help increasing significantly penetration if we would have then some lower price options that are delivered by clinicians. And again, I want to highlight the fact that the price of the implants or the price of all the complementary, it's only between 10% to 15% of the total price of the implants, then that price reduction has also to come significantly from lower fees from a surgical standpoint, which sometimes are driven directly by government when they have the capability to do this, and this is the Chinese example. The last also then lever is innovation, because innovation is still a very critical way to support easier implant placement and then open up the possibility for GP to place more, and the digital transformation is actually going into that direction. We believe that with that digital transformation, you are, as a GP, very significantly guided in how to do an implant treatment with really much higher than the chance to be successful and that this is decreasing also quite a lot of the risk of not doing that properly. And as digitalization is progressing very significantly, With AI very soon being able to provide treatment planning that are going to be completely automated, we believe that step by step, the young generation will use those tools and will also see then the implant treatment as easier to perform, less risk to take, and will also drive much more this standard of care when it comes to replacing a tooth loss.

Okay, thank you very much.

The next question comes from Falco Friedrichs with Deutsche Bank. Please go ahead.

Thank you for taking my question. Firstly, I'm interested to hear a little bit more about your level of visibility. I mean, it's clear just listening to this call so far, everyone's a little bit nervous about the trends in North America. Can you speak a little bit about sort of how many weeks of proper visibility you have and sort of what gives you confidence in some improvement again over the next few quarters and maybe also where the lead times are now? And then secondly, can you tell us whether this first quarter was in line with your expectations or whether it was in fact a little bit slower than you had hoped? When I'm looking at your full year guidance, Guillaume, I think you've built yourself a great track record of guiding rather conservatively and then beating guidance. Is it that given this sudden weakness in the U.S., we should now look at the full year guidance as being a little bit more realistic and a little bit less conservative than in previous years? Thank you.

Thanks, Falco. Then three things, then three answers to your different questions. um visibility uh then um uh visibility we have uh then um visibility on the on as we said a kind of six to eight weeks uh and when we are talking about um our uh then uh customers and looking at their booking. I think this is pretty stable, as I said. That's why I expressed the fact that I see that it's going to be a stable demand in North America with regard to where we are. We've then increased potentially digital performance that would help us then to have some growth still coming significantly for North America. When it comes to the guidance, I understand that there is also potentially not so much me personally, but a lot as a company wanting to be then conservative. But if you look at 2022, we guided high single-digit growth and we deliver high single-digit growth. just because the current environment is not so easy to plan and the microeconomic effect has quite some impact on demand and performance. Then when we have guided also for 2023, this is exactly in the same vein. Then we are not really looking at willing to guide in a conservative manner. We do believe that our guidance of high single digits, when we look at our peers, especially when we look at our performance versus peers in 2022, it has been very significant market share gain. And we want to reiterate those very significant market clear gain on our own field. I think it's really interesting to see that also from a relative basis. Then we believe that 2022 guidance is in line and we have confirmed this. But when we started the year, we did believe that, yeah, it's not a walk in the park still with regard to the overall uncertainty that we're having on the microeconomical conditions. If I want to express what we have heard during the first quarter, the fact that maybe the interest rate will decrease maybe earlier than planned in March or April, and then suddenly it was maybe June, and now it's maybe fourth quarter in North America only. then this is exactly the environment in which we are acting in. And that's why we want to be really, you know, responsible in the guidance we are giving to really look at this with realistic eyes. And I think this is the way we have done in 2023 as we did in 2022.

Okay, that's helpful. Thank you, Guillaume.

The last question comes from Mateusz Dorfniewski with Thomson Reuters. Please go ahead.

Thank you for the possibility to ask a question Maybe I skipped that but I would like to ask Maybe I did not get it. So in APAC region Revenue jumped to 130.8 million francs and I would like to ask if, and then the group reported 15.1% organic revenue growth. Could we hear from you the exact number for China?

We don't share the number for China in detail per quarter. We are doing that on a full year basis because China is part of our top 10 market for which we are releasing our numbers openly. You can do a quick map looking at how much we were at the end of 2023. As we express the fact that we have high single-digit growth for the rest of Asia Pacific, There is some way to try to have a potential look at where we are here, but we are not giving entirely our detailed number for China on a quarterly basis.

I understand. And maybe you could repeat maybe, because you mentioned 15-20% earlier in regards to China. Could you repeat what you were referring to?

Yes, we said that when you look at comparable than quarters, which will start by the second half. We said that we should be, and we were planning for having the potential to achieve 15 to 20% growth rate for, actually it was China, the China market, and we hope that we can develop as such in China. Then as this is, starting from yeah I would say August or even July then we said that the second half could be taken as a good starting point for this growth rate thank you very much pleasure okay With that, we conclude our conference. Thank you for being with us today, and we look forward to meeting you at one of the upcoming conferences or during one of our roadshows, which are outlined on slide 2022. And thanks again for joining, and have a great day.