DENTSPLY SIRONA Inc.

good day and thank you for standing by welcome to the q4 2024 dense fly serona earnings conference call at this time all participants are in a listen-only mode please be advised that today's conference is being recorded after the speaker's presentation there will be a question and answer session to ask a question please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again i would now like to hand conference over to your speaker today Andrea Daly, Vice President of Investor Relations.

Thank you, Josh, and good morning, everyone. Welcome to the Densly Serona fourth quarter 2024 earnings call. Joining me for today's call is Simon Campion, Chief Executive Officer, Herman Kudo, Interim Chief Financial Officer, and Rich Rosenzweig, Executive Vice President, Corporate Development and General Counsel. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the investor section of our website at www.dentsplyserona.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recently filed Form 10-K and any updating information in subsequent SEC filings list some of the most important risk factors that could cause actual results to differ from our predictions. On today's call, our remarks will be based on non-GAAP financial results. We believe that non-GAAP financial measures offer investors valuable additional insights into our business's financial performance, enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics used by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to the prior year quarter unless otherwise noted. A webcast replay of today's call will be available on the investor section of the company's website following the call. And with that, I will now turn the call over to Simon.

Thank you, Andrea, and thank you all for joining us this morning for our Q4 2024 earnings call. Today, I will start by providing an overview of our recent performance. Then Herman will cover Q4 and full year 2024 financial results and our 2025 outlook. And I'll finish with a strategic operating update. Before we get started, earlier this month we augmented our board with the addition of Dan Scavilla and Mike Barber, two proven leaders with skill sets that are additive to the board and that will be highly beneficial as we continue to execute on our transformation strategy. Dan, CEO of Globus Medical, is a seasoned executive with deep expertise in commercial deployment and business integration, having successfully led the merger of Globus and Nuvasiv. Mike brings over 40 years of experience in product management and innovation, including executive leadership roles at GE, where he was responsible for the transformation of the company's digital X-ray program. Now let's start with some key points on slide three. In the fourth quarter, we were pleased to see green shoots in several areas of the business, including a return to organic sales growth in Europe of approximately 2% and global growth in imaging of nearly 13%. WellSPECT exceeded estimated market growth rates, posting approximately 7% growth. SureSmile continued to grow globally, achieving a nearly 4% increase over the prior year quarter, with over 20% growth in Europe for Q4 and the full year. Fourth quarter results in Europe included continued momentum in Germany. We are encouraged by the positive step change we saw in performance in the second half of 2024. The key actions we took to improve performance and address market dynamics included reintroducing Orthophos SL, improving commercial execution by directing sales personnel towards our most significant growth opportunities, and enhancing our training to address customer needs. This translated into results that exceeded sales targets since the relaunch and better positions us for success in 2025. Excluding the incremental charges associated with BITE taken in the fourth quarter, the business outperformed our latest guidance by almost 2% on the top line in Q4 and almost 4% above the midpoint of our full-year adjusted EPS guide. In 2024, we finished the year with organic sales down 3.5%, in line with our latest guidance. Let me give you some color around this. BITE reduced sales by 1.2%, and there was a 2.5% impact from CTS. While CTS faced both global macroeconomic and price pressure, our relaunch of Orthophos SL that I've just mentioned and the launch of PrimeScan2 propelled second-half growth in imaging and facilitated volume growth throughout the year in scanners. This is the third year in a row that we have demonstrated volume growth in scanners, the gateway to patient treatment and clinical workflows. SureSmile posted four quarters in a row of high single-digit to double-digit growth on aligners, and we'll speak a little later on about our investments to accelerate our SureSmile business. Endo demonstrated the importance of innovation with our new Exmart ProPlus motor and Reciproc BlueFi launches, leading to competitive conversions in the U.S. during the second half of the year. WellSpec delivered another year of strong growth across all regions. Our January survey of over 1,300 respondents indicated that our major markets remain relatively unchanged, with utilization showing slight improvement across most categories, but continued softness in elective procedures. Survey results also continue to indicate strong interest in driving efficiencies through workflow improvement, which aligns with our strategy. For 2025, we expect the external environment to remain largely unchanged. And as such, we expect organic sales to be down 2% to 4% for the year, including a negative bite impact. As we've said, we view our current portfolio, innovation engine, commercial scale, and clinical education platform as key value drivers. We made a strategic decision to redeploy certain bite resources to our Sure Smile platform. they have commenced leveraging their strong capabilities to drive direct-to-consumer demand and revamp e-commerce. Furthermore, we have transitioned key software resources to our SureSmile innovation team, who now focus on creating simplified product offerings, upgrading the user interface of the software, and reimagining the patient and customer experience. We expect some of these improvements to launch as early as mid-2025. Earlier this month, we also announced that we are exploring strategic alternatives for our well-specced healthcare business. We believe that taking this step can unlock significant value for our stakeholders. Over the last two years, we have invested very strategically in this business. We strengthened its foundation and positioned it for the future by prioritizing product innovation and profitable revenue growth and investing in capacity to meet anticipated demand growth. Importantly, we've developed a strong product pipeline with potential opportunities to access significant untapped markets in WellSPEC's core business and other adjacencies. Our added focus and attention to this business has resulted in attractive top-line growth and profitability. We look forward to determining an outcome for this evaluation process. As we said, The company is committed to maintaining a disciplined approach in regularly evaluating our portfolio, cost structure, investments, and additional pathways to drive sustainable, profitable growth. We have made meaningful progress on our transformational journey, completing key initiatives and milestones in 2024 with our plans and momentum continuing into 2025. I'll share a more detailed update on our foundational initiatives later, But before we move on, I want to reiterate that we remain highly committed to taking actions to reshape the organization, unlock efficiencies, enhance customer engagement, and strategically allocate spend with a return focus. We are confident that these steps will enable us to capitalize on the advantages that a broad-based dental organization has to offer. The financial contributions that we originally laid out for these initiatives during our 2023 Investor Day continue to remain on track. Now, before we discuss financial results in more detail, I'd like to share some recent business highlights on slide four, starting with operational updates. We announced our phase two transformation activities back in August. Action steps are now largely complete and on track to deliver full run rate savings by the end of 2025. We also announced in August that we were investing in a virtual sales team in the US with the expectation that the team would be stood up and calling customers in Q1 2025. The team is now fully staffed and has already made over 8,000 unique customer touchpoints to date. And as we've shared, we've completed the largest individual phase of our ERP deployment in the US, which went live on November 1st. This deployment also laid some of the important foundation needed for future phases. Moving to innovation, in Q4, we were pleased to complete the US launch of the MIS LYNX implant, part of our value implants offering. LYNX is a versatile, reliable choice for a wide range of clinical applications. It combines a thoughtful design with cost effectiveness, offering excellent value to clinicians and to patients alike. In 2024, we successfully received eight 510K clearances. This reflects the progress we have made in the execution of our new product development and regulatory processes. And we have already launched six out of eight of these innovations to market, including PrimeScan 2 and Lynx. With DS Core, we continue to drive adoption, surpassing over 37,000 unique users in Q4. representing approximately 15% growth sequentially. In September, we launched PrimeScan 2, and its link with DS Core represents further integration of our digital ecosystem. This integration provides our customers more flexibility and efficiency within their practice and enables a better patient experience, which all supports practice growth. As we've seen with other key functionality adds to DS Core, we saw a nice increase in subscriptions related to the PrimeScan 2 launch, which is powered by DS Core. Wrapping up our highlights, clinical education remains an important component of how we bring value to our customers. In 2024, we hosted thousands of training and education events across the globe, including six DS Worlds hosted in different locations with over 7,000 participants. And with that, I'll turn it over to Herman for the financial update.

Herman? Thanks, Simon. Good morning, and thank you all for joining us. Today I will cover our fourth quarter and full year 2024 financial results, as well as the 2025 outlook. Before we turn to discussion on our non-GAAP fourth quarter financial results, let me mention impairments recorded in the fourth quarter. We recorded non-cash charges for the impairment of goodwill and other intangibles of approximately $370 million net of tax within the orthodontic and implant solutions and connected technology solution segments. These charges were largely the result of weakened demand from sustained macroeconomic and competitive pressures in implants and equipment. Also included in the charges was a full write-off of the Byte trademark, as we do not plan to use it in the future operating model of our aligner business. Now let me cover the full year 24 bridge from latest guidance as shown on slide five. Since November, revenue was negatively impacted by an incremental $29 million associated with BITE estimated customer refunds recognized in Q4. The remaining business performed approximately $17 million better than expected, primarily driven by stronger CTS sales in Europe. Similarly, BITE impacted adjusted EPS by an incremental $0.24, which also contributed to a higher tax rate. The remaining business drove approximately $0.07 of adjusted EPS outperformance. Moving to slide six. Our fourth quarter revenue was $905 million, representing a reported sales decline of 10.6%. and organic sales decline of 10.7%. Two discrete items impacted our fourth quarter results. First, the voluntary suspension of sales and marketing of BITE aligners resulted in a charge for customer refunds above what we contemplated on our November call. In total, BITE had a $62 million year-over-year impact in Q4. Second was the timing of EDS distributor orders placed ahead of our November 1st ERP deployment, which resulted in an approximately $20 million shift between quarters. As we previously disclosed, this positively impacted Q3 and negatively impacted Q4, but had no effect on full year sales. Other drivers were soft retail demand in CAD-CAM, primarily in the U.S., and a decline in IPS. This was partially offset by growth in Europe, global imaging, SureSmile, and WellSpect. EBITDA margins declined 290 basis points in the quarter, mainly due to a lower gross margin, which contracted 240 basis points, largely driven by BITE. Our continued focus on reducing OPEX partially offsets the decline. Adjusted EPS in the quarter was 26 cents down 41.3% from the prior year due to lower margins and a higher tax rate. In the fourth quarter we generated 87 million of operating cash down 45.6% year over year due to timing of working capital adjustments, as well as refunds issued to bike customers. Let's now turn to fourth quarter segment performance on slide seven. Starting with the essential dental solution segment, which includes endo, resto, and preventive products, organic sales declined 3.4%, driven by the previously mentioned impact from the timing of U.S. distributor orders. Excluding this impact, EDS benefited from stable patient traffic in the quarter and higher volumes in rest of world. Shifting to the orthodontic and implant solution segment, organic sales declined 28.7%, primarily driven by the $62 million year-over-year impact from BITE. SureSmile grew low single digits globally, supported by another quarter of 20% plus growth in Europe and mid-single digit growth in rest of world. When we look at SureSmile aligners specifically, we delivered another quarter of high single-digit growth. Organic sales in implants and prosthetics increased sequentially but declined high single digits versus the prior year quarter due to lower lab volumes and lower implant sales in the U.S. Wrapping up our dental performance, CTS, our connected technology solution segment, saw organic sales decline 8.2% versus the prior year quarter. Our global CAD-CAM business declined double digits, driven by the softer retail demand environment in the US, while Germany was a bright spot for CAD-CAM, delivering growth for a second consecutive quarter. We were pleased to see the equipment and instruments business return to growth in the quarter, posting low single digit improvement. This quarter represented the highest sales in six quarters, and as Simon said, imaging benefited from the relaunch of OrthoPhose SL in Europe and APAC. An improved focus on commercial execution led to performance ahead of our internal expectations. Moving to WellSPECT, organic sales grew 6.7 percent, driven by growth across all three regions as new product launches continue to positively contribute. Now let's move to slide eight to discuss fourth quarter financial performance by region. U.S. sales declined 29.9%, the majority of which was driven by Byte, CAD-CAM, and the previously mentioned EDS timing impact. This was partially offset by growth in imaging, WellSpec, and low single-digit growth in Endo, driven by continued adoption of our XSmart ProPlus motor. U.S. CTS distributor inventory levels decreased sequentially in the quarter by approximately $45 million. This represents a $15 million year-over-year decrease in distributor inventory. Relative to historical averages, distributor inventory levels remain low. Turning to Europe, organic sales increased 1.8% with CTS, SureSmile, and WellSpect driving the growth. SureSmile sales increased over 20% with notable growth in Italy and Spain. CTS grew mid-single digits with equipment and instruments posting double-digit growth for the quarter. Germany, which is our largest market in the region, had the highest quarter of sales in the last seven quarters as imaging performance rebounded and commercial execution improved. Rest of world organic sales declined 2%, driven by declines in CTS and lab. EDS organic sales grew high single digits from increased volumes and strong endo performance in China. Implants for the quarter, despite a difficult comp in China as a result of the volume-based procurement program. Now let's turn to slide nine to briefly cover our full year 24 performance. Sales for the full year were 3.79 billion, representing a reported sales decline of 4.3% and organic sales decline of 3.5%. Foreign currency translation negatively impacted sales by $34 million or 80 basis points due to a stronger dollar versus most major currencies. The majority of the negative impact was driven by CTS and BITE. CTS declined high single digits and was negatively impacted by competitive market pressures, as well as higher interest rates in the U.S., Germany, and other developed markets that dampened capital equipment purchasing over the course of the year. Despite this, we took actions that drove improvement in the second half of the year, including the Orthophos SL relaunch. IPS was negatively impacted by a double-digit decline in lab, partially offset by growth in implants, mostly attributed to the strong first-half performance in China. Performance bright spots for the year included mid-single-digit growth in SureSmile, with aligners growing double-digit, double-digit growth in China, and mid-single-digit growth for WellSpec. EBITDA margins contracted 80 basis points to 16.6%, driven by lower gross margin attributed to lower volumes and product mix in CTS, as well as BITE. This was partially offset by OPEX savings from foundational initiatives. Adjusted EPS was $1.67 for the year. Operating cash flow was $461 million, up 22.3% year over year, driven by timing of customer collections, and changes in inventory and other working capital measures. Free cash flow conversion was 83%, representing a year-over-year increase of over 40%. The company finished the year with $272 million of cash and cash equivalents and a net debt to EBITDA ratio of approximately three times. The increase was partially attributed to the bite suspension. In 2024, we returned $376 million in capital to our shareholders through $250 million of share repurchases and our quarterly dividends. As of December 31st, 2024, the company had $1.2 billion of remaining board authorization available for future share repurchases. Next, let me cover our 2025 outlook on slide 10. For 2025, we expect organic sales to be down 2% to 4%, including a negative 2% by sales impact, which represents a net sales range of 3.5 billion to 3.6 billion. We expect FX to be a headwind to reported sales based on current rates, and we remain cautious on the macro environment, particularly for equipment. We expect SureSmile and WellSpec to continue to drive growth in 2025, partially offsetting anticipated declines in CTS. In EDS, we expect growth in line with global patient traffic, which remained largely stable in 2024, augmented by recent product launches such as the XSmart ProPlus. We also believe the actions taken in 2024 and those planned for 2025 will improve our commercial execution and performance in areas like CTS and implants. We expect EBITDA margin to be greater than 18% in 2025, with margin improving as we progress through the year based on the timing of investments and restructuring savings. We project an increase in the full-year tax rate due to geographic income mix and the unfavorable impact of certain declining performance trends which have occurred over the last few years. We expect adjusted earnings per share to be in the range of $1.80 to $2. In Q1, we expect organic sales to decline high single digits year over year, primarily due to bite and current headwinds impacting CTS in the US, which has a tough comparison in CAD-CAM largely attributed to lower expected distributor inventory levels in Q1. This contributes to an outsized manufacturing absorption impact in the quarter. With that said, we anticipate margin expansion over the course of the year as forecasted volume increases drive operational improvements. For purposes of modeling adjusted EBITDA margin and EPS, please look to the fourth quarter of 2024 as we expect to be in line to slightly ahead of those results. Slide 11 shows our adjusted EPS bridge listing some of the major driver items. We wanted to try and break this down for you and walk through the moving parts. Let me start with where we finished 2024 with adjusted EPS of $1.67. We then add back one-time bite items of 24 cents that we spoke about earlier. This gives an updated base of $1.91. From there, we layer in negative 2 cents EPS impact from expected lower organic sales. We expect a combined 20 cent EPS benefit from transformational initiatives and reduction of bite resources. An anticipated roughly 300 basis point increase in the tax rate translates to an eight cent headwind. Net net, this yields approximately 5% growth in adjusted EPS on an FX neutral basis. FX is expected to be a headwind of about 11 cents for 2025. With that, I will turn the call back over to Simon.

Thank you, Herman. Now let's move to our strategic update starting on slide 12. In 2024, we advanced our strategic and transformational agenda to strengthen our foundation and position the company for long-term performance and successfully adjusted our approach in certain areas as necessary. Let's briefly cover an update on each of the foundational initiatives shown on slide 13. Our supply chain team continues to seek opportunities to improve network performance. To date, we have closed three manufacturing sites and four distribution centers, progressing towards our 10 to 15% manufacturing and distribution footprint reduction target. We are advancing the SKU optimization initiative, focus on the end-on-resto portfolios, and are migrating revenue-generating SKUs in 2025. In 2024, We also completed the first two deployments as part of our ERP rollout, and we will continue with our plan in 2025. We implemented this program to improve the experience of customers when working with us and to gain efficiencies across the organization. Lastly, you can see the progress we have made on phase one and phase two of our transformation and the reinvestments in our business. Now I would like to address our long-term EPS objective on slide 14. In 2023, we laid out targets in our long-range plan. At that time, we indicated that two-thirds of the adjusted EPS bridge was largely within our control, with defined contributions coming from key initiatives. Organic growth on the other one-third was the most variable component. Since then, the macro environment, challenging marketing and competitive dynamics, underperformance in implants, and the bite have created headwinds on organic sales. These declines in organic sales have put pressure on our margins, making the $3 adjusted EPS target unachievable in 2026. That said, as I've noted, the transformational work that's underway in our company is on track, including all of our foundational initiatives which is contributing positively to EPS. And importantly, we continue to focus on driving free cash flow conversion to return value to shareholders. Now let's take a moment to think about the reasons why Dentsply Sirona can deliver sustainable, profitable growth. And let's move to slide 15. We regularly hear from our customers about the importance of innovation, clinical education, and enhancing workflow efficiency. With a pipeline of 20 plus new product launches planned through 2026 and one of the broadest and most flexible education platforms in the industry, we are well positioned to address these needs. We believe accelerating enterprise digitalization and innovation focused on increasing the digital connectivity of our portfolio through our DS core platform will facilitate workflow improvements across all of dentistry. and increase patient acceptance of treatment plans. Moreover, this is applicable to both GPs and specialists. We've spoken about our opportunities to create our own demand, enhance the customer experience, and improve our customer proximity. Our efforts to establish a virtual sales team, drive sales force effectiveness, and invest in e-commerce and customer service were designed to do just that. In implants, for example, we are increasing the digital connectivity of our portfolio, driving more localized customer education, and simplifying our messaging. These are important action items all derived from insights gained and plans developed at our deep dive review on implant performance. Additionally, based on feedback from our commercial teams and our customers, we are prioritizing the enhancement of Salesforce capabilities across the business, both in clinical and selling skills, to create improved opportunities for success. As a further initiative to accelerate OPEX reduction, we are in the process of partnering with a third party to facilitate further transformation to our G&A footprint. While this is not contemplated in our current 2025 outlook, we believe this initiative will significantly and sustainably reduce our G&A cost structure and bring us closer to market benchmarks. Moreover, the harmonization of policies and procedures as a result of this program will improve our customers' experience of partnering with us. And finally, with the evaluation of WellSPECT just initiated, we are not providing further commentary on 2026 at this time. Now I'll wrap up on slide 16 with a few summary remarks. FY24 proved to be a challenging year with a mix of external and internal factors hampering our progress. That said, we have made meaningful strides on our transformational initiatives in 2024, further shaping the organization, driving efficiencies and enabling investment. We continue to act with urgency to transform our customer experience and overall cost structure. Our formula for growth hinges on innovation, clinical education, sales execution and customer experience. We deliver best-in-class innovation and clinical education. Our strategic priorities for 2025 focus on improving sales execution and customer experience. This formula, coupled with a scalable and lean cost structure, will enable us to realize the true potential of Dentsply Sirona. And with that, I'll open it up for questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Elizabeth Anderson with Evercore ISI. You may proceed.

Hey, guys. Good morning. Thanks so much for the question. I had a little bit of a question about the well-spec strategic alternatives. Obviously, thanks for all the details in terms of the new product launch and the continued investment there. Maybe one, can you talk about some of the new product areas that you're working on in terms of what you expect the opportunities to be there? And then two, if I remember correctly, in the last strategic alternatives review of that business, One of the issues was the sort of enmeshed manufacturing footprint with some of your core dental businesses. And so have you guys worked to address that as part of, you know, since that last transition? And if you could give us an update on that as well, that would be helpful. Thank you.

Good morning, Elizabeth. Simon here. Let me start with the second part of your question. Really, to all intents and purposes, WellSpect and our dental businesses that are based in in Sweden are largely separated. So there is not a whole lot of unplugging to do, shall we say, if there is an opportunity to explore an alternative for WellSPEC. So I would say that it is largely standalone with a pretty standalone leadership team as well. In relation to your question on innovation, Last year, we addressed a significant unmet customer need or rather unmet need within our portfolio with the launch of a sleeved intermittent catheter, which has gone very well and has helped contribute significantly to the enhanced growth profile of WellSpect. And then the other innovations that we are working on, I would say for comparative reasons, we would not be disclosing that at this time.

Thank you.

Thank you. Our next question comes from Erin Wright with Morgan Stanley. You may proceed.

Thanks. On margins, if you're assuming consistent margins in the first quarter, if I heard that correctly, that assumes a pretty meaningful ramp for the balance of the year. I guess what gives you confidence in that? And then it says you mentioned you're working with a third party to address costs, I guess, getting you closer to industry margins. I guess Over what sort of timeframe could that be achieved? What sort of magnitude are you thinking about on that front? Thanks.

Hi, Erin. It's Herman Kudo. How are you? Thank you for the question. So maybe just start with the margin. So what you're going to see is that Q1 will be the lowest point of the year, and you'll see that ramp up as the year progresses. It'll get better sequentially throughout each of the next three quarters. Keep in mind that we do have to cycle through the impact from BITE, so that will put pressure on the margins, especially Q1, Q2. We also have the foundational initiatives that have already begun but will start to ramp up as we get into the outer quarters. And then finally, what I would say is on this back office transformation that Simon spoke about, None of that is dialed into our 2025 plan. We do believe there could be some upside, depending on how quickly we move and get things figured out. There could potentially be some upside in 2025, but it would have a longer-term benefit as we head into 26 and 27. I hope that answers your question.

I think, Erin, if I could just build a little bit on Herman's statements around that work. As you know, when we came in here, we said about the harmonization of many systems and processes across our company. We've spoken before about Densply being a series of acquisitions, Serona being a series of them, and then the merger. And so we've had disparate systems and processes across the company. We've been systematically harmonizing them in areas such as R&D, quality, and regulatory over the past two or so years, and we're seeing a benefit to that. but there remains a lot of the back office work that we just referred to that affords us an opportunity to be more efficient at our company.

Okay, great. And then just on dental utilization trends, where do we stand now across the key markets? And you mentioned the continuation of the same expected in 2025. I guess, what does that mean? And And, for instance, how do we think about volume trends across EDS and the broader consumable demand environment? Thanks.

Yeah, hey, thanks, Erin. So I would say on EDS, you know, patient volumes obviously impact EDS significantly. I think globally it's pretty stable from what we've seen, and as you know, our survey is pretty large and global, so it's about 1,400 respondents this past quarter. So it's... It's pretty stable from an EDS perspective. Germany, while it's still negative, has again showed some room for optimism, and I think that's synchronous with the results that we've posted in Germany. I think there's a little more appetite there for investment, particularly in our CTS business, for example. But I will say that... The big issue for customers around the world are staffing shortages. And so we need to leverage our messages around the efficiency that our digital solutions and workflow solutions can afford customers to offset some of those staffing shortages.

Okay. Thank you.

Thank you. Our next question comes from Brandon Vasquez with William Blair. You may proceed.

Hi, good morning, everyone. I'll ask two up front because they're both related, so I'll just bucket them together here. They're both on Byte. The question is around, you know, there was a comment on the call that you wrote off the entire Byte brand name, if I heard that correctly. So just talk about what is the strategy here. It sounds like that kind of implies that maybe it gets rolled into SureSmile. What does this look like from a commercial strategy perspective over the next 12 to 24 months? And then the follow-up to that is basically what talk about what the P&L implications of this are. It sounds like Byte becomes a little bit of a tailwind after some restructuring going into 24. So talk through how that commercial strategy then impacts the P&L going forward. Thanks.

Hi, good morning, Brandon. It's Simon again. So let me start and then Herman can take the second part of your question. The way I would think about Byte, it's It's essentially two components. It's the product component, the aligner itself and whatnot, and the deep capabilities that the Byte team has around demand generation, e-commerce, software, patient experience, interplay with clinicians, and so on and so forth. So we've done a lot of work since October 24th. around with customers and potential customers. And I guess one thing in particular has resonated. The ability for the Byte capabilities to help us create demand and funnel it through to customers is, or rather resonates with many of our existing customers and many of our potential customers as well. So we are redeploying that capability to our SureSmile platform. The R&D teams at Byte also have immense capability. And as we've noted in the past and on today's call as well, our SureSmile software, which originated in wires and brackets, has a great, shall we say, back end to it. It's a trusted software solution for orthodontics. However, the front end of that software leads quite something to be desired. And it has proven to be a challenge to unlock new customers because of the difficulty at the front end. So we've deployed these byte resources to help with the upgrading of the user experience and the user interface on the SureSmile piece. In relation to the product, we are exclusively focusing now on SureSmile. I think we mentioned previously the challenges with bringing the Byte product back to market from a clinical or regulatory cost and timeline perspective. And so we will focus on leveraging our capabilities from Byte into our aligner business, into our SureSmile aligner business, but also into other parts of our business where we think an educated direct-to-consumer model may potentially drive increased awareness of, for example, chair-side dentistry. And I'll pass it over to Herman for the second part of your question.

Hey, Brandon. It's Herman Kudo. Thank you for the question. So I'll just talk a little bit about the bite implications to the P&L. I would refer you to slide 11, which kind of walks through where we were. So we finished 2024 with $1.67. Then we put the 24 cents of really one-timers is how you should think about that. We put that back into the base. So that gives us an adjusted base of $1.91. And if you just look, you do see a combination. There's a bar there that talks about the benefits from the bite resources going away, things like marketing. And there's also some of our foundational initiatives also captured in that bucket. And I think for simplicity, what I would say is I would probably call it, split that up maybe 50-50. I think that's a close enough target to go after. That'll give you some context. Let me spend a minute on sales because I think that's important. So we do have a little bit of sales that'll continue. So there was the treatment plan that was recognized over a number of months. So that will carry on a little bit. Over the course of 2025 and I believe a little bit into 26 it's it's a small number it's under $40 million but think of bite as as a very substantial headwind to supply growth in 2025 I hope that answers your question.

Thank you.

Our next question goes from David Saxon with Needham & Company. You may proceed.

Great. Good afternoon, Simon and Herman. Thanks for taking my questions. Maybe I wanted to ask on Implant, specifically the U.S. team, it looks like it was down in the quarter. So can you just talk about kind of the progress you're seeing in that team and thoughts of, you know, timing of returning to growth and then, you know, potentially market growth over time?

Good morning, David. Thank you for the question. I think in the US, it's fair to say that our expectations around growth have disappointed us and our performance has disappointed us immensely over the past two years. And the way we're trying to address this, we have We have just recently completed a deep dive, and I noted that in my prepared remarks. We will be launching more digital connectivity for implants on DS Core this year, and it's the first part of a three-phase approach to completely digitalizing our implant business on DS Core. We have spoken previously about reinvesting in clinical education in the implant world. And we've done that over the past two years. But the feedback that we have received over the past several months is, while that was at a macro level, it's a local level education suite of programs that are sought by our customers, and they are referring GPs. So we're going to be focused on doing that on a go-forward basis. and simplifying our messaging. We have a broad portfolio, but our messaging around it is complex. Our messaging to customers is complex, and our ability for our commercial teams to embrace this messaging has proven a challenge, given the fact that many of them just came on board in the past two years. We have also completed an assessment of your salesforce capabilities in implants in particular. And we are in the process of recalibrating them with added training. And that's happening as we speak. So we do expect performance in implants this year. We've done well in China, for example. Again, as we said, our portfolio is robust. We need to enhance digital. We need to change the way we approach customers with education. and we need to help our sales reps be more clinically astute, shall we say.

Okay, great. That was helpful. Thanks for that, Simon. And then just as a follow-up, I wanted to ask about this partner that's going to help you with G&A, just so we can kind of get an idea of the potential benefit. I guess I'd love to hear what's the benchmark for G&A as a person of sales that you're kind of targeting and where are you at currently? Thanks so much.

David, it's Herman. How are you? Um, maybe I'll, um, let me, um, let me just talk about this a little bit. We won't get specific into where we are relative to benchmarks, but I think, you know, you've been following the company for a long time. You understand where our SG&A is. Um, you know, there are parts of the, of, of the business, especially in the back office. that are over indexed relative to where industry averages are. And as we look to do more work to simplify the company, that's certainly an area for opportunity. Now, it will happen over time. It'll take us a little bit of time to ramp up the teams. It'll take us a little bit of time to kind of really see what the true opportunities are. But we do believe this is a value unlock for us that might help us a little bit in 2025. and then the out years from there. But it would be focused on a lot of different things. As you could imagine, whenever you do big acquisitions, there's always processes and policies. There's overlap. Where is the work? Where is it being done? How do you make it simple? Sometimes there's just Christopher Ptomey, duplicative efforts there's legal entity, so it would it would really give us an opportunity to simplify a lot of that, and like I said, we do believe there's there's a value unlocked there, but more to come on that in the future thanks David.

yeah great thanks. Thank you. Our next question goes from Jeff Johnson with beard you may proceed.

Thank you. Good morning, guys. I wanted to start just on the cost transformational process. So the $80 to $100 million in savings that you've targeted through 2025, can you just level set us or remind us how much of that had run rated into the model at the end of 2024? How much is going to be incremental in 2025? And when I look at slide 11, Herman, as you've referred to that 13 cent benefit, I think if I'm doing the math right and kind of taking that up to a pre-tax, that's about a 35 to 40 million pre-tax benefit. Is that the flow through of those 2025 incremental cost savings? Is that primarily what makes up that 35 to 40 million of benefit on a pre-tax basis in 2025? Thank you.

Good morning, Jeff. I'll start and then Herman can finish your question. We never actually communicated how much of those savings were going to occur in 24, 25, or how it was going to be split between drop-through and reinvestment. As you do know, we have reinvested. In particular, this past year, we reinvested in a virtual sales team to reach those customers that that we cannot reach or have not reached in a long time simply because of, for example, the value of these accounts, maybe the location of these accounts. And as I noted in the prepared remarks, we have now been in touch with over 8,000 unique customers since we rolled this program out and have made in excess of 40,000 phone calls to customers around the U.S., We have created demand for the virtual sales team themselves, and also they are partnering with our field-based sales team to direct those field reps to opportunities that they may not have otherwise understood existed. So, again, we never shared the breakdown of where that money was flowing into, but we have been investing it. in areas that we expect to drive demand for all of our business, really.

Herman? Yeah, Simon, I wouldn't add too much more. What I would say is that it's all contemplated in the guide. Simon touched on the investments. You know, I've come in, I've been here for around 90 days, and I think the team here has done actually a wonderful job of finding resources to not only take out, drop through to the bottom line to create shareholder value, but also invest in the future into very high growth, high impact areas that will impact the top line in the future.

Okay. I guess let me go at it one other way or just ask one follow-up or a two-part follow-up. Just one. The $0.13 savings then that is in the slide deck, is that primarily flow-through of cost savings from the efforts you've been making on the transformational side, or is there other stuff in that $0.13? Just so I understand that, number one. And number two, Just on SureSmile, I don't have my geographic weightings all that tight, but when I listen to your description of Europe, rest of the world, and U.S., I think I get U.S. SureSmile down in the double digits. Just, you know, what is going on there? I know the end markets are challenged in the U.S. for sure, discretionary spending is, but is there anything else with SureSmile down? I think double digits in the U.S. Thank you.

Yeah. Let me start with the $0.13 savings. Maybe what we could do is I think we'll have some follow-up callbacks. It's more of a modeling question. So why don't we take it offline? We'll handle it from there. And then maybe what I could do is turn the Sure Smile question over to Simon.

Yeah, thanks, Herman. So, Jeff, as I think we've said before, About 60% of our SureSmile business is in the U.S., and the majority of the balance is in Europe. And Europe has been doing very well, as we've noted, for several quarters now. And it's now becoming rather meaningful to us. Your question or your statement on U.S. performance, when we think about... our Sure Smile business. There are more components in that than just our aligners. There are some legacy products in that business too that make up about 20-25% of that business. It's that area that is really impacting us within the Sure Smile category, shall we say. If I look at our aligners, our true aligners business, as I noted in prepared remarks, we've posted four quarters of high single digits to double digit growth in 2020, 2024. And we had some unique experiences or unique losses in the U.S. that we've shared before. And if you exclude those, we're actually growing in the mid single digits in the U.S. on the aligner business alone. And we continue to make progress with our GPs Obviously, our orthodontic footprint is rather small, our specialist footprint is rather small with SureSmile, but within our GP business, we continue to see solid growth in that category across 2024 in the U.S. Thank you.

Thank you.

Our next question comes from Kevin Caliendo with UBS. You may proceed.

great thanks for taking my question guys um first i guess i know you didn't mention it but is there any timing update or any visibility on on the german tax situation that you can provide um to us at this point second question i had was given um one of your primary you know wholesalers is being taken private is there Any disruption there for you? Have you seen any? Is it an opportunity? Is it like take us through how that transaction, if in any way, shape or form could affect, you know, your outlook or your business strategy going forward?

Thanks. Good morning. Good morning, Kevin. So on the two parts of your question, obviously on the on the German tax situation. And I would say no meaningful update at this time. We continue to work with the authorities in Germany, providing them information and responding to their requests. We continue to believe, and our teams have recently reinforced this, that we believe that the issues that that the Germans think we have. We don't think they exist, and we've gone through them all again on multiple occasions. In relation to resolution of this, it's rather difficult to say. I wish I had a better answer than that, but it's likely out a while, and we continue to work with them and and try and partner with them to get to a good spot. In relation to your question on the distributors in the U.S., we continue to have a really good working relationship with them. We continue to partner with them in the field. We continue to speak to them at management levels. They continue to order our product and be a very important partner for us in North America. We have not seen any reason to believe that anything is going to change. We're a meaningful component of their business. If I think to the feedback that many of you are aware of and is continually reinforced by our customers and a survey, customers are looking for opportunities to grow and to be more efficient. And the solutions that we provide, our digital solutions in particular, enable customers to be more efficient, to have increased patient treatment acceptance rates, and to grow their own practices. So the technology we have enables customers to be successful, enables us to be successful, and significantly, in the context of your question, enables our distribution partners to be successful as well.

Great. Thank you, guys.

Thank you. Our next question comes from Michael Cherney with Learing Partners. You may proceed.

Good morning, and thanks, obviously, for a ton of detail so far. Maybe just asking a bigger picture question. You have the bite wind down. You have the well-specced evaluation being put in place. You have the G&A benchmarking work that you're doing. All of it seems very logical at this point in time. Given the broader nature of how many moving pieces you have going on, Simon, does it make sense to take even a further, broader look and make sure that you have the right pieces within the portfolio going forward long-term, the assets that you want to have, the other assets that may not fit going forward, but kind of do it from a broader basis? How do you think about as you get through some of the especially market-oriented weaknesses, that coming out the far side, Dentspy will be a better top-line business while obviously focusing on the leaner side that you've noted relative to the benchmarking work? Sorry, that's a weird question, but I appreciate it.

No, that's fine, Michael. It's a good question. So I'll answer it in two parts. Number one, as I've noted many times, including I think my first call with all of you folks, we regularly assess our portfolio for opportunities to streamline it, and there are different ways we can streamline it, such as the skew rationalization work that's underway, and then there are ways like the manner in which we are discussing WellSPECT. If you reflect when you have a moment on some of my prepared remarks here, we are really in a unique position as a end-to-end dental company that's been hindered by some internal execution challenges that we've noted ad nauseum and also some macro challenges. But if you step back and think about the workflow efficiency and digitalization of dentistry moving further into this century, into this decade. The scanners are the starting point for everything digital. They are the hub of all clinical workflows in the GP practice, and more importantly, in the specialist practices. And through our DS Core, where we're building out workflows across each of these major procedures in the dental community, we think we'll be in a great position to get after the digital workflow and then enable our customers to use our implants, our aligners, our endodontics, for example, moving forward. There are certain parts of our portfolio that I think are absolutely essential to a broad-based dental business. But that being said, we do continue to evaluate them. But we do believe in the future of digital dentistry. We do believe it's under-penetrated across the world, even in the developed markets. And I shared with you all before, The data from Germany, where everyone has a picture of Germany as the most digitalized dental community in the world, only 27% of practices in Germany have an intraoral scanner. So that sounds like a ton of opportunity moving forward as we convey the value of digital dentistry and the value of the ecosystem that only Dentsply Sirona can provide to customers.

I appreciate the context, Simon. Thank you.

Thank you. Our next question comes from John Block with Stifel. You may proceed.

Thanks, guys, and good morning. Herman, just on slide five, and I must be doing something wrong here, but it looks like it was a $29 million negative hit from the November guidance, and you lay out 24 cents in terms of the headwind. But even if I flow through the 29 million at like 100 percent, just drop it to the bottom line, You know, I get a lot closer to a 15 cent hit, not the 24. So maybe I'll just start there. Can you just help me out what I'm doing wrong there or what's off? And then I'll just ask the follow-up.

Yeah, John, it's the tax rate. If you go back to the original guide in November, we were anticipating, I want to say it was somewhere in the neighborhood of about 18%, 18 or 19%. and it ended up being close to 22%. So just the, I describe it as the jurisdictional income and how this all worked impacted the tax rate substantially. That's the arithmetic that you need to consider to make the math work. I hope that answers your question, John.

It does, certainly good enough for me. And maybe I'll just stay on the bite theme and I'll stick to the, The slides as well. The bridge on page 11 is really helpful, you know, but it shows, if I'm reading it correctly, it shows BITE accretive to 2025 EPS off the adjusted 24 figures of the $1.91. And, you know, I've got BITE revenue, you can let me know if I'm in the right zip code, of about $140 million in 2024 once you factor in the refunds. You called out it's going to be a 200-bip headwind to total company growth. So, you know, Byte should be down about $80 million year-over-year. Maybe it lands $60 million in 2025. Feel free to comment on all those assumptions. But, you know, this asset's going to be accretive to year-over-year EPS growth if revenues are down $80 million. And maybe is it, Simon, just there's so many variable costs involved in this business. So any color or clarity around all those assumptions would be great. Thanks, guys.

Hey, John, we'll definitely get into maybe a little bit of a modeling question offline from this call, and I'm happy to walk you through it in a lot more detail. But I think at the highest level, John, the way to think about it is there was a lot of investment in the middle of the P&L in this business, particularly in marketing, as an example. So with this business really James Rattling Leafs, taking a different shape, we have an opportunity to take some of those costs out and that's why you see the pickup and EPS i'm happy to walk you through a little bit more detail, so you can build your model. James Rattling Leafs, And I think the numbers that you're talking about in revenue, they are in the zip code and we'll and we could like I said do a little bit more math around that later.

James Rattling Leafs, Thanks guys appreciate it.

Thank you. Our next question comes from Jason Bednar with Piper Sandler. You may proceed.

Hey, good morning, and thanks for taking the questions here. I actually wanted to focus on some of the soft retail CAD CAM commentary. Look, I can understand maybe some softness in the numbers. Actually, I kind of anticipated some of that just given some of the Prime Scan 2 inventory load in last quarter. It seems like that did impact the numbers here. But it was more the retail commentary that struck me, especially at a time when you've got your first scanner launch really in several years. So just a bit surprising even in a challenge macro. So what do you think is going on, Simon? Why isn't PS2 resonating better in the U.S.? ? And then how much of the pressure in CAD-CAM do you think can be traced at all to strained relations with Patterson?

Good morning, Jason. Let me start with the second part. I don't think any of it really is an issue with Patterson or anyone else for that matter, to be quite honest. In relation to PrimeScan2, as I noted, in the call, we have seen three consecutive years of growth in scanner placements, which, again, as I noted on the call and in Q&A, is extraordinarily important for us as a full-line digital dental supplier. The macro environment in North America continues to be continues to be pressurized as I think as we said and I think some others have said too and with you know when you think about the the model for a for a dental practice where your footprint on on their their main mainly put their their most popular businesses preventative and resto is not is not demonstrating any growth reimbursement is is is being compressed for for patients Patients have been, they fund to a rather high level in around 40% fund elective procedures. And so when you think about the macro environment and you think about footfall in the clinic, customers, i.e. dental practices, may continue to be reticent about investing in different pieces of capital. That being said, we saw solid performance in imaging in the U.S., but we were certainly disappointed with CAD-CAM. I don't think it's reflective of anything with Patterson. I think it's reflective of macro.

Okay.

All right. That's helpful. And then maybe if I back up a little bit of a higher-level question and focus in on Germany, actually, but I wonder if Germany could actually prove to be a microcosm of what you're experiencing in your broader business. You had commercial challenges. You tried to push the high end, but really struggled in a tough macro and with some low price competition. And then you pivot and reintroduce a lower priced offering that helps turn the tide. It's a big contributor to growth returning in the market. Maybe talk about that experience in Germany and that really how it informs how you think about your portfolio and positioning across the globe.

Again, thanks for the question, Jason. I think Germany is a tale of two cities, as it were. I think one was the reintroduction of Orthophos SL as a midpoint scanner. The other piece that I again referred to in the prepared remarks was a renewed focus on execution discipline within the imaging team in Germany. And so I think there are two factors to that. What we have been doing over the past number of months in different parts of Europe and in the U.S. is reigniting training for our commercial teams around such things as professional selling skills and also around equipping them to have clinical conversations, workflow conversations with their customers and creating their own demand and then funneling it through the appropriate channel, whether it's our direct business in Endo on aligners, for example, or whether it's our distribution partners on our capital equipment business. So I think the lesson from Germany is it's not just about the product, it's also about the capabilities of the sales team that we can enhance And that's why we're in the process of doing that here in the U.S. as we speak.

Okay. Thank you.

Thank you. I would now like to turn the call back over to Simon Campion for closing remarks.

Thank you, and thank you all for your thoughtful questions. In closing, I want to thank the entire Dents by Sirona team for their dedication to our customers and our transformation. While there is still work ahead, we are making progress, bringing innovation to the market, instilling accountability and a performance-orientated mindset in our culture, and positioning Dentsply Sirona for long-term success. Through disciplined decision-making and enhanced execution, we remain focused on driving value for all shareholders and stakeholders. Thank you.

Thank you. This concludes the conference thank you for your participation you may now disconnect.