DENTSPLY SIRONA Inc. (NASDAQ:XRAY) Q1 2024 Earnings Call Transcript

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) Q1 2024 Earnings Call Transcript May 2, 2024

DENTSPLY SIRONA Inc. reports earnings inline with expectations. Reported EPS is $0.42 EPS, expectations were $0.42. DENTSPLY SIRONA Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone. And thank you for standing by. Welcome to the DENTSPLY SIRONA First Quarter 2024 Earnings Call [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to the Vice President of Investor Relations, Andrea Daley. Please proceed.

Andrea Daley: Thank you, operator. And good morning, everyone. Welcome to the DENTSPLY SIRONA first quarter 2024 earnings call. Joining me for today’s call is Simon Campion, Chief Executive Officer; Glenn Coleman, Chief Financial Officer; and Andreas Frank, Chief Business Officer. I’d like to remind you that an earnings press release and slide presentation related to the call are available in the Investors section of our Web site at www.dentsplysirona.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 lists some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, 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’ 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 utilized 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 prior year quarter, unless otherwise noted.

A webcast replay of today’s call will be available on the Investors section of the company’s Web site following the call. And with that, I will now turn the call over to Simon.

Simon Campion: Thank you, Andrea. And thank you all for being here with us this morning for our Q1 2024 earnings call. Today, I’ll begin, as usual, by providing a summary of our recent performance, Glenn will cover Q1 financial results and the full year outlook. And I will finish by providing an update on our strategic operating plan. Now starting on Slide 3. In Q1, organic sales declined by 1.9%, driven by lower sales in Connected Technology Solutions and Essential Dental Solutions, partly offset by growth in Orthodontic and Implant Solutions and Wellspect HealthCare. Within CTS, imaging equipment experienced larger-than-expected headwinds, driven by continued unfavorable macroeconomic conditions and competitive pressure. Regionally, the macroeconomic environment in Germany remains challenging.

For the quarter, organic sales were roughly flat, excluding Germany. In April, we conducted our quarterly global customer survey covering 12 countries with nearly 1,500 respondents. Survey results indicate that in the US patient volumes are stable and dentist sentiment is relatively unchanged. In Canada, a new government health policy designed to help lower and middle-income families is rolling out in the first half of 2024, which we believe has resulted in patients delaying treatment until this benefit is in effect. In Germany, we are pleased to see procedure utilization and dentists outlook improved slightly. All other European markets included in the survey remained relatively stable. In Asia Pacific, dentists in Australia continued to exhibit more negative sentiment.

We saw mixed feedback in Japan. Although, there was a decline in patient volumes, dentists were positive around the imminent change in reimbursement for intraoral scans. Finally, in China, patient volumes are stable, but remained low compared to other markets. As we execute on our strategic objectives, it remains crucial that we consistently seek input from customers to inform our decisions so that we can validate that we are on the right path. We appreciate so many taking the time quarter-after-quarter to provide us with this substantial and valuable input. Our first quarter adjusted EPS was $0.42, which was an increase of nearly 8% and in line with our expectations despite softer sales. For the full year, we are maintaining our outlook range for organic sales and adjusted EPS, but trending towards the low end of both ranges.

We’re taking a cautious stance here with the macro uncertainties that continue to impact parts of our business, most notably imaging. We’re also adjusting net sales for an additional FX headwind. Though we believe these headwinds are transient, we are actively taking additional measures, such as tightening cost controls to better position us to deliver on our profitability and EPS targets for the year. We remain confident in our long-term trajectory. We have a comprehensive portfolio and are making progress on our strategic objectives. In fact, today, we announced that we plan to execute up to $150 million in share repurchases in the second quarter. Moving to Slide 4, I would like to share some select business highlights. We are advancing innovation and progressing initiatives across our business.

DS Core remains a key focus of our innovation. We are delivering enhancements and seeing strong uptick in adoption rates from new users and increased utilization rates from existing users. We also piloted DS Core enterprise with a large DSO in the US. Given the shared experience to date, we are jointly exploring increasing the scope and size of this pilot. I’ve already shared the dynamics impacting our imaging business. To better position our portfolio, we expanded our offerings through the relaunch of Orthophos SL, a 2D and 3D imaging line in Europe. Bringing this product line back to market broadens our imaging portfolio and provides flexibility to our customers with more options at different price points. Therefore, we believe bringing this solution back to our customers will improve performance in imaging.

Additionally, in CTS, we recently launched Axano Pure, a new treatment center with advanced features at an improved price point and Midwest Energo, a portfolio of electric handpieces. These innovations bring new efficiencies and enhanced capabilities to our customers, a continued key demand from customers captured in our quarterly survey. In EDS, we continue to roll out X-Smart Pro+ in additional markets, which included Japan in Q1. X-Smart Pro+ is an endo motor solution that enables dentists to focus more on the procedure rather than the tools. Our data shows that the motor optimizes performance of DENTSPLY SIRONA’s endodontic filing systems and has differentiated attributes that sets it apart from its competition, and we are pleased with the uptake of this technology thus far in Europe and in Japan.

We also remain committed to advancing sustainability. We are a mission driven organization focused on improving health and access to care, and we are proud to partner with organizations, such as the International Association for Disability and Oral Health, who promote equitable access to high quality oral healthcare for patients with disabilities. This partnership builds upon the work we have already done in this area with the University of Pennsylvania to provide equipment for their care center for persons with disabilities, which serves several thousand patients each year. Lastly, our Wellspect HealthCare business achieved a new milestone with the validation of its emission reduction target by the science based targets initiative. We believe Wellspect HealthCare has long-standing leadership and expertise in sustainability that can benefit our entire company.

And with that, I will hand the call over to Glenn for a more detailed financial update.

Glenn Coleman: Thanks, Simon. Good morning, and thank you all for joining us. Today, I’ll provide more detail on our first quarter results and an update on our full year 2024 outlook. Let’s begin on Slide 5. Our first quarter revenue was $953 million, representing a decline of 2.6% over the prior year quarter. On an organic basis, sales declined 1.9% as foreign currency negatively impacted sales by approximately $7 million or 70 basis points. On a constant currency basis, sales highlights in the quarter included approximately 53% growth in China, 14% growth in our global aligners business, 9% growth in CAD/CAM and 5% growth in Wellspect HealthCare. These improvements were offset by declines in imaging equipment where we continue to experience the effects of market conditions and increased competition.

In addition, our Essential Dental Solutions segment had year-over-year declines, largely due to a tougher comp. Despite lower sales, EBITDA margins expanded 30 basis points due to restructuring savings and net investment hedges. Gross margin was flat year-over-year but improved 140 basis points on a sequential basis. Adjusted EPS in the quarter was $0.42, up 8% from prior year, largely due to higher EBITDA margins, a lower share count and a lower effective tax rate. In the first quarter, we generated $25 million of operating cash flow compared to an outflow of $21 million in the prior year quarter. The year-over-year improvement is attributed to improved cash collections and a lower build of inventory. We continue to maintain a strong balance sheet with cash and cash equivalents of $291 million on March 31st.

Our Q1 leverage ratio was 2.6 times, slightly higher than our long term targeted rate of 2.5 times. We expect leverage to increase marginally in the second quarter with a plan to end the year at approximately 2.5 times. These projected leverage ratios reflect the share repurchases that Simon noted earlier. Let’s now turn to first quarter segment performance on Slide 6. Starting with the Essential Dental Solutions segment, which includes endo, resto and preventive products. Organic sales declined 5.5% due to a tough year-over-year comp. As a reminder, EDS organic sales grew 11.5% in the first quarter of 2023, which benefited from a strong rebound in patient traffic and pre-buying ahead of price increases. Shifting to the Orthodontic and Implant Solutions segment, organic sales grew 5.6% with strong growth from aligners, up 14%.

SureSmile, our professional aligner brand, grew 9% and continues to benefit from market share gains, new product offerings and differentiated outcomes. We’re expanding further in certain international markets, including Japan and Brazil, which we believe will lead to continued momentum in SureSmile. Byte, our direct-to-consumer aligner brand, grew 18% over the prior year quarter. Byte growth accelerated through the period as the increase in customer interest in impression kit orders that we discussed on our last earnings call began to convert to aligner cases. Implants and Prosthetics grew low single digits in the quarter, highlighted by growth in China due to VBP and partially offset by declines in the US and Europe. Our value implant segment delivered double digit growth.

And on the premium side, the new EV family of implants and prosthetic solutions grew double digits outpacing the declines we have seen in legacy brands. Wrapping up our dental performance, CTS, our Connected Technology Solutions segment. So organic sales declined 5.7% versus the prior year quarter and was below our expectations, largely due to double-digit declines in imaging equipment. Our global CAD/CAM business was a bright spot and grew high single digits driven by increased demand in the US. Moving to Wellspect HealthCare. Organic sales grew about 5% with sales growth across all regions as we continue to benefit from new products launched in the last 12 months. We expect Wellspect to grow faster in the second quarter with high single-digit growth over the prior year.

Now let’s turn to Slide 7 to discuss first quarter financial performance by region. US organic sales grew 1.4% due to strong growth in aligners and CAD/CAM, partially offset by lower sales of imaging equipment as well as a tougher comp in EDS. US CAD/CAM had a strong quarter with double-digit growth in intraoral scanners, mills and 3D printers at both the wholesale and retail level. Distributor inventory levels increased sequentially by approximately $9 million, consistent with normal seasonality. We expect US CAD/CAM distributor inventory levels to fluctuate quarter-to-quarter and be roughly flat by the end of the year compared to current levels. Turning to Europe. Organic sales declined 5.8%, primarily due to lower Essential Dental Solutions and Equipment and Instruments’ volume across the region.

This decline was partially offset by SureSmile, which grew over 20% in the region, highlighted by higher demand in Spain, France and Italy. Germany, our largest market in the region, was down double digits versus the prior year quarter. We continue to see prolonged recessionary trends in Germany, largely affecting our equipment business. Excluding Germany, Europe organic sales declined 1.9%. Rest of world organic sales were approximately flat in the quarter, a significant implants growth in China was offset by softer demand for equipment in Japan and Canada. With that, let’s move to Slide 8 to discuss our updated outlook for 2024. We’re lowering our reported sales range by $50 million to reflect the additional FX headwinds due to the recent strengthening of the dollar versus the euro and other major currencies.

At current FX rates, we now expect reported sales to be within the range of $3.91 billion to $3.97 billion. We are maintaining our outlook range for organic sales, which is for flat to 1.5% growth, but trending to the low end of that range based on our first quarter results and the current macro environment largely impacting our imaging business. Our current outlook assumes strong organic sales growth in the second half of the year, primarily driven by double-digit growth in aligners, strong CAD/CAM demand and improvements in EDS and US implants. Moving to profitability. Our outlook for adjusted EBITDA margin of greater than 18% remains unchanged from our prior guidance. Adjusted EPS is trending towards the low end of the outlook range of $2 to $2.10 due to the lower sales expectations.

Consistent with the trends we saw in the first quarter, we expect that second quarter organic sales will decline low single digits versus the prior year period. We also expect about a $20 million headwind from foreign currency. Sequentially, reported sales are expected to increase in the second quarter based on normal seasonality. We anticipate second quarter adjusted EPS will be down slightly year-over-year, primarily due to a higher tax rate, partially offset by a slight improvement in adjusted EBITDA margin. With that, I’ll now turn the call back over to Simon.

Simon Campion: Thank you, Glenn. Moving on to our strategic update on Slide 9. On our last earnings call, I shared the progress we plan to make in 2024 on our foundational initiatives, including supply chain transformation and SKU optimization. We expect these programs to contribute meaningfully to enhancing and sustaining profitability over the long term. We are actively executing each initiative with financial benefits expected to begin in the second half of 2024. We expect that accelerating enterprise digitalization will enable both our customers and our organization to benefit from digitalizing and harmonizing workflows. I already shared the uptick in DS Core adoption rates, which includes both dental practices and labs and which we believe reflects the value it can bring.

The new products in our pipeline with expanded connectivity will further enhance the value of embedding DS Core in digital workflows. We’ve heard firsthand that customers appreciate the workflow efficiencies that we envisioned with this unique, differentiated and unifying platform. We expect our ERP modernization to also play a part in accelerating enterprise digitalization. It is more than a system rollout. It is a true business transformation. Through our phased approach, we plan to transition each country to a single commercial entity, enabling consistent business processes and implementing a range of enhancements to simplify how we conduct business with our customers, improve our operations and accelerate our innovation. We are currently piloting this rollout in several locations with phased deployments expected to start midyear.

Lastly, on enterprise digitalization, we are also advancing our data and AI strategy. We are leveraging the expertise of a leading cloud service provider that supports our digital platforms. We expect this important work will improve our customer experience and increase efficiency as we implement our new ERP and bring more functionality to DS Core. Next, let’s cover our progress on our objective to win in high-growth categories such as ortho, implants and continence care. In ortho, we have invested in SureSmile reps in Japan and frontline support for Byte. We are already seeing the growth in Byte with sales increasing nearly 18% in Q1 and we expect more than 20% growth for the full year. Byte Plus, our hybrid solution with in-office scanning and connectivity, also continues to expand and has now moved from pilot phase into commercial launch.

Feedback has been positive and the business is exceeding its KPIs on this initiative as we continue to ramp the model. SureSmile remains on track to launch in Brazil in the second quarter. We believe this is an important market to further drive geographic expansion in this business. In the US, we have invested in our implants business, expanding the team and enabling them with tools, trainings and growth orientated compensation plans. Implants in China has been a bright spot for our business with the first year of VBP exceeding our expectations. While we expect the program to continue to result in increased volume, we anticipate growth rates in China will moderate for the remainder of the year given the tougher comps. We are also investing in capacity expansion for our Wellspect HealthCare business to support the growth in vision from new product launches.

The business delivered mid single-digit growth in Q1. And with its innovation pipeline, we expect the momentum to continue through the remainder of the year and beyond. Lastly, supporting our ability to drive a high-performance culture, we started this year off with well-defined strategic and operational goals. We set clear 2024 KPIs across the company to monitor progress and drive performance. We believe this rigor will enable us to make better decisions as we navigate the dynamic external environment. Moving to our final slide. I would like to reinforce a few key points. First, I want to reiterate that fulfilling our commitments is essential. In Q1, we delivered nearly 8% adjusted EPS growth despite softer sales. While we see this as a positive, we know it is only part of what we need to deliver on.

And as such, we remain focused on achieving all of our commitments. Second, we have and will continue to take proactive steps to improve our competitive position, like our global investments in our aligners business and the reintroduction of the Orthophos SL imaging line. In addition, we’re continuing to put additional measures in place to improve cost and efficiency. To that point, our strategic initiatives remain on track. We have a clear strategy, detailed plans and well-defined KPIs that we watch closely and refine as needed. As we execute these initiatives, we believe our business will be better positioned for profitable growth as laid out in the schedule shared at Investor Day in a more normal macro environment. And with that, let’s now open it up for questions.

Operator?

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Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of David Saxon with Needham & Company.

David Saxon: Maybe to start out on guidance. Last quarter, you called out growth expectations for each of the business. So one quarter in, would love to get an update on kind of how you’re thinking about growth for each of the businesses? I’d assume CDS kind of comes down, but would love your thoughts on that.

Glenn Coleman: David, it’s Glenn. I’ll take that one. So just in terms of sequencing for the year, obviously, with our Q2 guidance color that we provided, we expect to be down organically about 2% in the first half of the year, which would imply we expect to be up close to 3% organically in the back half of the year to get us flat on a full year basis. If we look at it by our different business segments, I would expect Essential Dental Solutions to get back to a flattish number on a full year basis, that’s going to be down, obviously, in the first half of the year. But we expect the back half of the year to grow low single digits pretty much in line with what patient traffic should be. Ortho, we’re expecting to see really good performance there, certainly double-digit growth coming off a quarter of 14%.

I expect it to grow faster in the second quarter and then the back half of the year, exceeding 20% for our total ortho business is what we’re projecting right now, which would put us in a really good shape relative to that part of our business, have really good momentum. And if you look at what’s happening there, obviously, we’re seeing an acceleration of Byte, combination of the Byte Plus program that’s now fully commercially launched. We’re seeing really good impression kit growth, which is the lead indicator for future sales. And so we’re capitalizing on some of the competitive dynamics there from a Byte perspective. And SureSmile, we are making some significant commercial investments, both in Brazil and Japan. We talked about those in our prepared remarks.

And so ortho, we feel very good about our path forward in terms of putting up some very solid growth. For implants, I would say, low single-digit growth, similar to what we posted here in the first quarter. So that should be pretty consistent. The dynamic there though is I think we’ll see a slowdown in China with tougher year-over-year comps, offset by better performance in both our US and European implants business. But overall, that should be pretty consistent growth, I would say, throughout the year. CTS, obviously, we were disappointed in the quarter. We were down close to 6% organically. I would expect another challenging quarter here in Q2. We do expect, though, to see better performance in the back half of the year. It’s still expected to be down year-over-year in the back half of the year, but improvements from the first half.

We were encouraged by, obviously, the CAD/CAM growth that we saw here, that should continue as you move forward. Imaging, while disappointing, we’re obviously taking some actions internally to address the competitive dynamics, or relaunching Orthophos SL in Europe. Simon commented on that in his prepared remarks. That’s great because it’s a broader product offering at lower price points for our customers. And even in the first couple of weeks of Q2, we’re seeing some good traction there. So I feel good about that plan. We’re looking at promotional activities across different countries to see where we should be providing more promotional activities for imaging equipment, implementing additional financing programs to address the higher interest rate environment and then doing some additional sales training.

So I think we’re doing all the right things on imaging right now. It’s going to be a tough environment for a full year basis but that should put us overall in better shape in the second half of the year, although, still CTS is going to be most likely down mid single digits on a full year basis. And then, obviously, Wellspect, good momentum here in Q1. We expect faster growth in Q2 and that should be growing kind of mid to high single digits on a full year basis. So that gives you a little bit of color across our businesses. Hopefully, that was helpful.

David Saxon: Yes, super helpful, Glenn. Maybe I’ll ask my follow-up on the North America implants business. Maybe just give an update on kind of how that team is doing. There’s — you have a competitor who’s dealing with their own issues. So I wonder if that maybe accelerates your path to growth? I think original expectations were in the back half and then maybe even to market growth, I think that was in 2026. And then would love to hear your thoughts on what market growth actually is currently?

Simon Campion: David, it’s Simon. So as we’ve said before, we do expect to be growing or posting some growth in the back half of 2024. And then as you said, plan is to get to market growth by ’26. As we said, we have created a new team, we’ve given them the tools and the training. We did see some positive signs, I would say, in the quarter. We’re growing in the DSO business in implants. And as you know that, that part of the dental industry is not going away and is in fact accelerating. The decline of large accounts as for the most part stopped, so we’ve kind of — we think we’ve [stemmed] the bleeding to a large extent. We have heavily invested in clinical education, which was one of the areas that the company stepped away from in the past, and we’ve seen a significant increase in our presence at different educational for throughout Q1.

And as we’ve communicated before, in Q2, we’ll have the World Implant Summit in Miami, which is another reflection of our commitment to the implant family. And we’re expecting almost 500 attendees there, of which we expect in excess of 50% to be from North America. So we feel we’re making all the right steps in implants. It has, for sure, taken longer, I think, than we expected, given our history in different med tech industries. But as we speak to customers, they’re saying you’re making the right moves. It’s just going to take a while to turn the corner here given the complexity of the implant market and the complex referral network that’s required. And your question on market growth, I would think market growth in implants is mid single digits in general, notwithstanding the current macro climate where there’s probably pressure on implants given its elective nature.

Operator: And it comes from the line of Jeff Johnson with Baird.

Jeff Johnson: Simon, I thought maybe step back here just a second. You talked about bringing Orthophos SL back to the European market, you’ve got a lower price treatment center that I think you’re launching as well. Obviously, Primescan Connect a couple year, years and half, two years ago, you launched at that lower price point. You don’t rush these decisions out the door if it’s just cyclical, if it’s just a short term interest rate shock kind of thing, things like that. So what is this decision to move down the pricing scale, tell us maybe end markets, about competition, where your competitive positioning that historically with the Sirona brand has been at the premium end where it’s going right now? Would just love kind of your lay of the land there and kind of what’s driving your thought process and some of this move to the lower price points?

Simon Campion: In relation to Orthophos SL, Jeff, I think aside from any macro issues, I think that was the discontinuation of that product line a number of years ago was a strategic area given the mix of dentists’ willingness to buy value or buy premium. And so we had a significant gap we felt in our imaging line that can be addressed by the reintroduction of Orthophos SL. It fills out our line and now offers a set of price positions for different types of dentists and DSOs in Europe, in particular. So it’s not a rush decision given the macro situation. It is a gap that we identified and we’re now setting about filling it. And I think that’s consistent with other parts of our business, too. We have — we always had lower end treatment centers and we have value based implants as well. So serving the needs of the variety of customers that we provide technology to is a strategic objective of ours.

Jeff Johnson: I guess, maybe to think about it in a more consolidated way. And maybe Glenn, you could help here is, do you think your blended revenue per system sale, if we’re talking to treatment centers at imaging within CAD/CAM, anything like that. Does that need to keep moving down over the next few years, is there kind of a secular downward pressure on kind of those blended ASPs just as mix continues to move to those value? Or do you think in a better economy we’ll come back to premium product and premium prices reaccelerating a little bit and maybe that blended ASP per system or whatever can stabilize?

Glenn Coleman: Listen, when we talk to our customers, their number one concern is cost and cost increases in their practices. So we want to make sure that we have alternatives for our customers, whether it’d be premium priced products where they want a premium priced product or trade down value brands. I think when we look across our portfolio, we’re well positioned in each of the different categories. So implants, we have a premium product. We have a value implant product that’s very good. We talk about CTS and Primescan Connect. Even in EDS, we’ve got trade down and what we call fighter brands, such as Zhermack, as an example. And even in ortho, right, Byte is a lower cost alternative for ortho treatment. So I think it’s important you have alternatives for customers.

How this plays out over the long term? We’ll have to see. But we do know that right now, the number one issue our customers are telling us that they’re seeing is an increase in cost in their practices. So we want to be there for them with a comprehensive portfolio and supporting whatever it is that they need, whether it’d be premium or value products.

Operator: It comes from the line of Kevin Caliendo with UBS.

Dylan Finley: This is Dylan Finley on for Kevin. A question, Simon, in the prepared remarks talked about the tightening of cost controls to enhance profitability. Now, is that incremental to all the efficiency reductions you’ve set forward on the path to the 2026 EPS target? And on a — from a timing perspective, would these efforts have an impact on the bottom line in 2024, or is this more of a ’25 benefit?

Glenn Coleman: So I think on the whole, if we see more revenue softness and pressure on our top line, we’re going to continue to take actions across the organization in terms of looking at how to be more efficient in different areas of the organization and looking at areas to bring our costs down where we can. So these would be incremental actions if we see additional top line revenue pressure, and obviously, those would be ’24 actions.

Operator: It comes from the line of Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson: I was wondering if you could talk a little bit more about the gross margin line. It came in a bit stronger than I had been modeling. I just want to understand, is that sort of just a reflection of mix, is that a reflection of some of the restructuring efforts that you guys have already changed, I guess, with a view to kind of understand what the sustainability of that looks like across the rest of the year?

Glenn Coleman: I think, gross margins were a little bit better than we were expecting. We were expecting though to see an improvement from where we landed in Q4. Q4 was artificially low. We talked about the reasons back in Q4 around that. So on a year-over-year basis, our margins are essentially flat. I would expect going forward what we just produced here in Q1 results of 56.6% or so, is going to be pretty consistent on a full year basis. I wouldn’t expect much of a margin expansion or contraction story. It will probably go down slightly in Q2. And then as we get more volumes in the back half of the year go back up again. But we’re probably going to be, Elizabeth, around this range, I would say, for the remainder of the year.

Overall, pricing is stable. We’re not getting price increases but we’re not seeing significant decreases anywhere in the portfolio. Obviously, in certain areas, we’re getting some increase. Other areas are going down. But overall, it’s kind of flattish on a price perspective. And the key for us is driving more volume. As we get more volume, we’ll continue to see hopefully better gross margin performance. But right now, I would just say, expect our gross margins to be pretty consistent with what we’ve put up here in Q1.

Elizabeth Anderson: And just in terms of — just across the quarter that you saw in the results across the month of the first quarter. Would you say like that was sort of like a stable trajectory across the quarter, are you thinking that certain parts are getting incrementally better or worse? I’m just trying to make sure that we understand some of the jump up points as we think about, particularly 2Q, but then obviously, in the context of the broader guidance that you gave?

Simon Campion: I’m not sure I understood the question. Could you just repeat that, Elizabeth?

Elizabeth Anderson: Just in terms of like — I think you talked about like stable US business volume and things like that. So I’m just trying to understand like across the first quarter, like what sort of deteriorated as we moved across the first quarter, maybe what got stronger, just so we kind of have a good sense of like the cadence as we’re thinking about like the 2Q growth rates and then in the context of what you said for the full year?

Simon Campion: Listen, we saw a strong momentum in ortho throughout the quarter. I’m expecting that to continue, as I mentioned earlier, going into Q2. So we should see faster growth in ortho even versus the 14% that we put up in Q1. I think the area of disappointment, and even in March was disappointing, was our CTS business and imaging. And so we are expecting that challenging environment to continue going into Q2. So model conservative numbers, probably similar declines or even more declines in CTS in Q2. So that’s kind of, I would say, the dynamic relative to how the Q1 numbers played out. The CTS was disappointing and so some good momentum in Ortho, which is going to continue going into Q2. But overall, again, we’re expecting Q2 organic growth to be pretty similar to Q1, down about 2%-ish.

Operator: And it comes from the line of Jason Bednar with Piper Sandler.

Jason Bednar: I wanted to zoom in here on the imaging discussion. And sorry if we’re belaboring the point here, but really trying to understand maybe what changed versus when you first gave guidance a few months ago. Are you pricing and share dynamics that are shifting in the category and then you’re now responding accordingly like you intimated in your response to Jeff’s question? Or are you seeing offices, just having set equipment budgets and those budget dollars are shifting to other categories in high tech, especially those that are maybe more underpenetrated relative to imaging and where new product development is higher like scanners and 3D printing, is that what’s going on?

Simon Campion: Listen, I think the imaging part of our business, it’s the highest price point arguably within the dental space. And with the macro situation and continued pressure on the macro situation, and the outlook for interest rates continuing to be higher for a longer-than-expected period of time, I think people are just hitting the pause button on that. As you noted and as Jeff noted, we’ve been the high price player in this market for a couple of years. We felt that there was a gap in that space, OUS, that wouldn’t be addressed by Orthophos SL, and that’s why we have reintroduced it. But as Glenn said, and I think in response to one of his — one of the earlier questions, we are actively working not only by the reintroduction of Orthophos SL but also with respect to financing and promotional programs with our distribution partners to try and begin to address the challenges in the imaging market globally.

And obviously, we have noted numerous times in the past, we are arguably outweighed in Germany and that economy is under significant pressure now. And so the legacy Sirona side of our business continues to struggle in Germany, in particular.

Jason Bednar: Simon, I’ll actually pick up on that last part of the response. Just with — on Germany, I think you’ve been identifying these headwinds in that market for nearly a year now. I think it was 2Q of last year where you really first started talking about challenges in Germany. Did it take another step lower in the quarter? I mean, it sounded like it was still sluggish, but I’m just trying to tease out. Like did it take another step lower or are we seeing more of the same out of that market? Or I guess, maybe asked a different way, did the headwinds here that you’re experiencing from Germany on your growth performance, do those lessen meaningfully here near term as we anniversary through the first step down we saw in that market last year?

Simon Campion: We actually had — Jason, we actually had 300 respondents to our survey in Germany this quarter, which is meaningful. There is continued pessimism in that market about their practices and the dental industry as a whole. But the singular bright spot arguably in the survey from Germany is that the pessimism has reduced. In fact, it’s back to the levels that we experienced when we did the survey in July of last year when we began to highlight the imminent challenges that Germany is going to face. So there was an improvement in sentiment, but it was still — it’s still negative. And is in line with some of the other more negative countries, such as Australia and New Zealand as well.

Glenn Coleman: Yes, I would just add, Jason, that Germany in the first quarter was down over 15%. We expect double-digit declines here in the second quarter. I do think we’ll see better performance in the back half of the year, although, it’s still going to be down year-over-year in the back half of the year as well. But these are pretty substantial headwinds that we’re dealing with right now in Germany, has not gotten better from a results perspective. We’ve been seeing double-digit declines now for four consecutive quarters. So we do expect a bit of improvement with the relaunch of Orthophos with respect to some of the customer sentiment data that we’re seeing, but it’s going to be challenging through the remainder of the year, probably less challenging than hopefully in the back half of the year.

Operator: It comes from the line of Jon Block with Stifel.

Jordan Bernstein: Jordan Bernstein on for Jon. Just wanted to continue a bit of the discussion on the shift to value here in dental, but specific to value implants, performance seemed solid in the quarter. Another player mentioned solid performance in value implants last night as well. So are we seeing an accelerated mix shift in the industry as dentist DSOs have now battled higher cost for a handful of quarters? And if so, what does that mean for the implant portfolio of DENTSPLY SIRONA and how are you positioned there?

Simon Campion: Listen, I think we have seen a shift over the past several quarters that people are very interested in the value based part of the implants business. And we are fortunate that we have a robust portfolio in value and a robust portfolio in the premium segment. Obviously, our results have been dramatically affected in Q1 by the performance in China where we’ve been benefiting from VBP. And as we noted, we expect to continue to see solid volumes from China, although, the growth rates will drop as we anniversary the benefit that we’ve foreseen for that. Is there a strategic shift to value? I would say, it’s definitely heading that way. But as an organization where we’ve been under pressure for a number of years on our implants business, it may present an opportunity for us to present ourselves as the value and premium based company within the implant world. Andreas?

Andreas Frank: Yes, maybe just to add a little bit more to that is, I think the implant market overall is still — we’re still talking about adding penetration with additional accounts, additional customers. And so we have a robust innovation pipeline, both for the value and the premium segment. And in premium, in particular, I think a lot of the digital connectivity, the integration across technology and the workflows will continue to be important to those customers that really value so that, that integrated benefit that they can get in the premium segment, not to say that there’s also obviously a different value proposition that some of the other accounts are looking forward that are moving more towards value.

Jordan Bernstein: And then for my follow-up, I’ll focus on Byte, a solid momentum there in the first quarter. It sounds like you commercially launched with Byte Plus, seems like it’s out there at 30 locations, if I have that right, which is up 5 quarter-over-quarter from the pilot. Any early feedback that you’re able to share from the dentists on Byte Plus would be appreciated. And then maybe how impression kits are trending thus far in 2Q?

Simon Campion: I think Byte Plus, we’re getting positive feedback from the accounts that we’re working with. I think, as you can imagine, sort of this in-office scan, it allows us to capture an incremental portion of those customers or consumers that are already coming through our Web site. So it’s a very good use of sort of our ad spend and dollars that way. We see that as we roll out, it’s very important to be locally penetrated, so that we’re actually accessible to those patients that come through the Web site. And that’s why it’s important to add — you’ll see, I think, an accelerating ramp here in terms of the actual offices that are part of the network and part of our providers. So it’s still early on, right, 30 or 35 sites now, as you said, and I think Glenn will circle back on the second part of your question.

Glenn Coleman: On the impression kit growth, I mentioned it earlier without the specific number. I mean we’re still seeing impression kit growth that’s in excess of 50%. And obviously, not all of that’s going to convert to revenue, but that’s one of the lead indicators to revenue growth. And so impression kit growth remains quite robust for us. I would also add that Byte also has rolled out a bunch of new products, accessory products, teeth whitening, cleaners for the aligners, other wellness products, and that’s actually got a really high attach rate. So that’s very encouraging as well as we go forward. Still a small part of our Byte business but that’s going to be an area of growth opportunity in the future.