Simon Campion: And a final comment here, just to come back to the original part of your question. Many of those sites where we have been in pilot have not only seen benefit from the Byte portfolio but many of those customers have now signed up to the practice, so that they can begin their preventive restorative treatments as well. These are customers who, in many cases, would not have had a primary dentist previously.
Operator: Our next question comes from the line of Nathan Rich with Goldman Sachs.
Sarah Conrad: This is Sarah Conrad on for Nate. I just wanted to dive a little more into implant performance. You had pointed to a potential macro impact from the elective nature of this treatment, which is pretty consistent with what we’ve been hearing. But I guess we’ve heard from some peers that they’ve been pointing to a sequential softening in the demand environment for implants in the first quarter. So can you discuss any changes to implant market demand that you’ve seen or changes in your consumer survey? And then as we think about that improvement needed in the US implant business in the second half, can you just break out what we saw in Europe and North America implants in 1Q?
Simon Campion: Well, listen, I think we’ve said before on calls such as these that with respect to implants, maybe we’re not the best company to provide any macro analysis given our performance in the past. I think we have, for sure, seen a little bit of pressure from our customer survey about the elective nature of procedures. In general, overall, it’s stable. The US was about the same. Germany, sentiment around implants actually improved a little bit in the quarter. But elsewhere, it’s diminished. So net-net, it’s probably about even on a global basis.
Andreas Frank: And just by geography, in the first quarter, both the US and Europe were down low to mid single digits year-over-year when you just look at our implants business. Obviously, overall, we grew the category, that was largely driven by China and the growth we saw there. And if you look at the portfolio, we grew double digits within value implants and we’re down in premium.
Sarah Conrad: And then as we look to those 2026 EPS target of $3 and the path you laid out to 4% plus organic growth in 2025. Can you — do you believe that — like what level of organic growth is needed in the second half of ’24 to remain on pace to reach those ’25 and ’26 targets?
Glenn Coleman: Yes, this is Glenn. I’ll take that one. I think, first and foremost, nothing has changed relative to our path or our confidence to getting to the $3 of EPS by 2026. When we laid out our targets in November of last year relative to getting into the $3, we basically assumed a normal macro environment, a nonrecessionary environment and normal patient traffic really beginning in 2025. We knew that 2024 was going to be a challenging year. We assumed very little growth in those assumptions. And so we’ll have to see how the rest of the year plays out. But our path to $3 remains unchanged. We still need 4% organic growth over the period to get to the $3. If you look at that bridge though, two thirds of it are things in our control, things such as the restructuring, savings, our global operations and transformation work that we’re doing, improvements in our ortho profitability and some of the other things around net investment hedges and so forth.
All the things in our control are on track and we’re executing against those. The $0.40 to $0.45, that’s dependent on the 4% organic growth, we’ll have to see if the macro environment improves going into next year. Obviously, if it doesn’t, it will create pressure on our ability to get to $3. But right now, we assume very little growth in our initial assumptions in 2024, but a return to a more normal macro environment and getting to that 4% plus growth in 2025. And so obviously, we’ll have to see how the rest of the year plays out.
Operator: Our next question comes from the line of Justin Lin of William Blair.
Justin Lin: I’ll focus first on Byte, that’s sort of slightly different question. How much of the strength and acceleration you kind of alluded to, do you think is still kind of attributable to that sort of that SDC bonus, if you will — bolus, if you will, or is there some other kind of dynamic at play here like consumers perhaps get going for more affordable options, given the macro certainties, really just trying to get a sense of how sustainable this growth is?
Simon Campion: So I think, for sure, we’re benefiting from SDC. We have invested behind the growth that we are seeing increasing the number of treatment planners being very selective, but increasing our commercial activities with respect to advertising. We have provided new financing options, because as we’ve shared before that this population are lower income families and individuals than perhaps would choose another type of aligner. So we’ve been very proactive and I think that’s helping drive performance to date. But it is select investments that drives profitable revenue growth. We are not investing to lose money here. We are driving profitable revenue growth and we’ve continued to see profits accrue from our Byte business. And as Glenn has said, would you expect to be north of 20% growth for Byte this year.
Justin Lin: And just a follow-up question on Byte Plus specifically. Can you kind of remind us whether Byte Plus margins would be better than regular Byte, and kind of maybe the timing around Byte overall kind of getting to corporate margins?
Simon Campion: Yes, I think overall, there’s not a significant differential in the margins for Byte Plus versus Byte. There’s a bit of a higher cost but we’re getting some of that back through price. So I wouldn’t look at the margin differentials anything significant between the two. Relative to Byte getting back to corporate margin averages, right now, I would say that is not part of our plan over the next three years. We obviously are planning on seeing an improvement in our Byte profitability over the period. But I don’t yet have a clear line of sight that we can get back to our corporate averages. I think if we can get significant improvement though, that is going to be our goal here and get faster revenue growth.
Operator: Our next question is from Allen Lutz with Bank of America.
Allen Lutz: A quick one for Glenn. I think in your prepared remarks you talked about a 30 basis point benefit from restructuring savings in the quarter. I think that gets to about $0.01 against a $0.13 sort of implied guide here as part of the EPS outlook. Can you talk about where restructuring savings came in versus your expectations and sort of the cadence for that bucket over the course of the year?
Glenn Coleman: So the 30 basis point improvement was our overall EBITDA margin improvement. Obviously, there’s a lot of puts and takes in that number. So that’s not necessarily the — obviously, the net benefit is from our restructuring activities. I would just say, though, when we look at the restructuring plans that we’ve got that have been ongoing and being executed against over the last, call it, five quarters, we’re on track. I would expect most of the incremental savings to come here in the back half of the year. In fact, if I look at the EPS guidance, if you assume a $0.20 increase in the second half of the year versus first half of the year based upon the comments that we’ve made, about a third of that improvement is going to come from higher organic growth in the back half of the year and two thirds coming from the restructuring savings.
So that’s the way to think about how the cadence of the restructuring savings is going to hit. So clearly, what that means is we’re expecting our operating expenses on a dollar basis to come down in the back half of the year with the work that we’re doing.
Operator: Our next question is from the line of Michael Petusky with Barrington Research.
Michael Petusky: So I was wondering, DS Core was highlighted quite a bit at the Investor Day, and you guys called it out again today as there’s progress being made there in terms of utilization, new accounts, et cetera. I’m just wondering, is there a point in time where you guys start actually quantifying, hey, this is the percentage gains in terms of new accounts, these are some metrics around utilization. Like given that this is an initiative that certainly will take you deeper with accounts and give you some margin expansion opportunities. I mean, would it make sense to start quantifying this at some point?
Simon Campion: Well, that’s a good question, and we’ll take it under advisement. DS Score has got multiple benefits for us, right? It is a unifying platform across all of our capital equipment. And so as we roll forward, we would expect to see the benefit in the capital side of our businesses. And then as we increase more functionality, we do expect to be able to monetize to some extent the software arm of that business, in particular. But to your point on quantifying the performance of DS Core, I think we said we’re in excess of 20,000 accounts now with DS Core. We’ve just come off our largest quarter of DS Core subscriptions. We’ve added a number of new different functions to it in the past quarter and we will continue to add new functionality to it throughout the year.
And we have a very aggressive goal for our expectations with respect to subscriptions in 2024. As I said, we see that as a unifying platform and we are already, as we noted in the prepared remarks, in pilots with some DSOs and we are hoping to expand that pilot. The benefits that DS Core accrues to customers, whether they are labs, DSOs or individual practices are significant. And customers are beginning to share sentiment on the positive experience they’re having with it vis-a-vis efficiency of their practice.
Michael Petusky: I mean, I think I see all of that, and that’s why I’m interested in as much data as you guys are willing to provide. A follow-up question I’m going from that to a tiny part of your business relative Wellspect, I’m just curious, Glenn. So I think you said mid single digit to high single digit performance for ’24, if I heard that correctly. And I’m just looking sort of at the back half comps there. And I guess, I say this in context of the fact that you just delivered 5% growth versus a pretty easy first quarter comp. I guess, what gives you the confidence that you can sort of deliver mid to high single digit growth in that given that the comp, particularly in Q4, is really tough?
Glenn Coleman: So just to reflect on statements we’ve made before, we’re pretty happy that Wellspect remains part of our business. As we noted in the remarks, we’re investing in innovation and capacity expansion for Wellspect. We have launched a number of new products that are still accruing customers and performance. And in fact, over the next couple of weeks, we will launch yet another new product [Indiscernible] [sleeve], which is directed at the spinal injury patients who have limited hand mobility and dexterity. So we’re opening up another market for ourselves with the launch of that new product. And confidence is high that we can get to our numbers in 2024 on Wellspect. As we’ve noted, it’s a macro immune business. We’ve got a new General Manager in place in Gothenburg who knows the home care business extraordinarily well and he is reshaping the team over there. And we expect continued and indeed accelerated performance from that group moving forward.
Michael Petusky: So essentially, if I was encapsulating that response, I mean new products are going to be a meaningful part of what helps drive that second half performance against really tough comps.
Simon Campion: New products and execution.
Operator: Our last question is from Erin Wright with Morgan Stanley.
Erin Wright: Can you provide us with an update on like SKU rationalization? Just remind us on how that impacts kind of the top line to as well, if at all, for you? And then how meaningful is that or where do we stand on sort of SKU rationalization and your efforts there?
Andreas Frank: Erin, it’s Andreas. So I think we’ve talked about before, SKU rationalization and optimization really is focused right now on our endo and resto portfolios. We’re well underway there. We’re in the process of eliminating those SKUs that are really sitting in our system not driving revenue. So that helps us with operational efficiencies across various plants. So we are realizing this benefit now. And then as we look at the next phase, which is optimizing a certain number of brands that we have in both of those areas, we’re very closely coordinating this also with our network optimization efforts, right? And we’re being very, I think, thoughtful and selective here so that we can, in fact, transition the revenue and the brands to other product lines that we have in the portfolio. So I think, as of today, we’re progressing towards the plan that we have laid out for ’24 and I think more meaningful benefit to come out of that program in ’25 and ’26.
Operator: And now I would like to turn it back to Simon Campion for final comments.
Simon Campion: Thank you. Thank you all for joining today’s call. Before we close, I would like to leave you with some key points. DENTSPLY SIRONA is well positioned in attractive industries. We do have a robust customer centric portfolio that supports end-to-end dental workflows. While on the continence care side, our Wellspect HealthCare business is investing in capacity and innovation. Our transformation continues to take shape operationally and culturally. Although, there is much more to be done, we believe that executing on our plans will accelerate growth, profitable growth. Innovation stands as a vital part of our strategy. We have a healthy pipeline. And as we improve our customer centricity and disciplined execution, we expect to deliver more value for our stakeholders.
And finally, on behalf of the management team, I want to extend our gratitude to all DENTSPLY SIRONA employees for their ongoing commitment to the business and to our transformation journey. Thank you.
Operator: And with that, thank you for participating. You may now disconnect.
