Good day, and thank you for joining us. Welcome to the Dentsply Sirona Third Quarter 2023 Earnings Conference Call. I would now like to turn the call over to your speaker today, Andrea Daley, Vice President of Investor Relations. Please proceed.

Thank you, Amy, and good morning, everyone. Welcome to the Dentsply Sirona Third Quarter 2023 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 website at www.dentsplysirona.com. Additionally, historical financial data related to our new segments is also available on our website. 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. Additionally, on today's call, our remarks are based on non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to 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 are provided versus the prior year quarter, unless otherwise noted. A webcast replay of today's call will be available on the Investors 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 Q3 2023 earnings call. Today, I'll start by providing an overview of our recent performance, and then Glenn will cover Q3 results and the revised '23 outlook. Before we discuss the recent performance, I wanted to comment on the recent events in the Middle East. I am deeply saddened by the horrific terrorist attacks on Israel and the continued injuries and loss of innocent lives. We have over 300 employees in the country and the safety of our employees and their families is our utmost priority. Currently, our business in Israel remains operational, and Glenn will touch upon this topic again when he covers the outlook assumptions. I would like to remind you all that we are hosting our Investor Day next Thursday, November 9, where we plan to cover our strategy and 3-year plan in more detail, including the path to the adjusted EPS target of $3. As such, for today's call, our prepared remarks will be brief and focused primarily on a few key messages, Q3 financials and our outlook for the rest of the year. Now starting on Slide 4. In Q3, we continued to execute on our strategic plan to transform the business to deliver sustainable performance over the long term. We are making meaningful progress on our objectives despite the challenging macroeconomic conditions that negatively impacted top line growth in the quarter and led to the revised 2023 outlook. The business experienced headwinds in certain markets, particularly Germany and the U.S. I'm sure you're seeing the data from ADA, and I'll comment momentarily on our own survey data. There were, however, some bright spots in the quarter, including 20% growth in China and double-digit growth in our U.S. CAD/CAM business. Our Aligners business with Byte and SureSmile also delivered another quarter of double-digit growth. In Q3, our EBITDA margins expanded 70 basis points, with additional contributions generated by our restructuring program. These initiatives remain on track to deliver the full $200 million run rate savings by mid-2021. Additionally, today, we announced our plan to execute $150 million in share repurchases during the fourth quarter. Despite the headwinds we faced in the quarter, we continue to build capability and stay focused on our transformation journey. Now moving to Slide 5, let's start with DSOs. We are seeing positive results from our reinvestment into our relationships with DSOs. We continue to repair, rebuild and refocus on our relationships with this important and growing customer segment. Our performance in this quarter was flat sequentially. We are building positive momentum with a healthy funnel of DSO opportunities over the next several quarters. We are also fulfilling our renewed commitment to clinical education. Our live education events such as DS World serve as an important component of our overall clinical education infrastructure. These events give us the opportunity to engage with customers and provide unparalleled clinical education. This year, we hosted 4 DS World events in the U.S., Spain, Italy and Dubai, with 3 held this past quarter. Approximately 7,000 participants attended globally, and we delivered over 250 education courses. At DS World in Las Vegas, we presented the Future of Care. We believe DS Core will play an increasingly important role in delivering the future of care as the digital paradigm shift connects products and technologies in delivering care to patients. It's a key element of our strategy, and we highlighted expanding features at this year's event. Now of course, we continue to focus on innovation. We recently launched a new SureSmile simulator on DS Core, which has generated positive feedback. Customers have highlighted patient experience and efficiency benefits with the integration of the simulator into DS Core. We have also released updates to DS Core, including the communication canvas and lab ordering and viewer functionalities. We are particularly pleased with the communication canvas as it enables customers to highlight the entirety of a patient's clinical data and proposed treatment plan in one place. Anecdotal commentary from customers indicates that it drives an increase in treatment acceptance rates. We look forward to discussing and showcasing DS Core's capabilities in greater depth at our Investor Day next week. I'd also like to highlight OSSIX Agile which we recently launched as part of our implants, bone regeneration portfolio. Implants clearly remain an important part of our business. And while we have a robust portfolio, we continue to increase the capabilities of our commercial teams, expand investment in clinical education, and incentivize commercial execution. And finally, in Q3, we continued our cadence of quarterly regional business review meetings with meetings in APAC and LatAm. These meetings provide us the opportunity to dive deeper into each business and to engage with employees and customers. As a result of these reviews, we have identified key opportunities in each region for potential growth investments and have already taken action on some. The consistent and highly positive feedback from our employees and customers strongly support continuing this in 2024. Now just before I turn it over to Glenn to discuss our third quarter results in more detail, I'd like to take a moment to comment on our revised outlook. As we continue to focus on the transformation of our organization, including driving greater discipline and accountability, customer centricity will continue to stand as a core theme. As such, we believe our quarterly surveys have helped inform us and view of market trends. The weak sentiment in Australia and Germany in Q1, followed by reduced sentiment in Germany in Q2, led us to exhibit caution during our Q2 earnings call in August, especially given our presence in Germany. With continued negativity among German and Australian customers, in addition to reduced patient volume trends in the U.S., we decided to revise our outlook, which now sits within the guidance range set at the beginning of the year, despite a worsening macroeconomic environment. And with that, I'll hand it over to Glenn.

Thanks, Simon. Good morning, and thank you all for joining us. Today, I'll provide more detail on our third quarter results and an update on our full year 2023 outlook. Before doing so, I'd like to comment on the $302 million noncash after-tax charge in Q3 related to goodwill and other intangible asset impairments, primarily impacting our Connected Technology Solutions segment. We recorded this charge as a result of adverse macroeconomic factors, including weakened demand, particularly in Europe, as well as increased discount rates, reflecting the higher interest rate environment. Let me now move to our third quarter financial results. These trends impacted our top line results, which came in below expectations. Despite this pressure, our transformation and organizational alignment work enabled us to expand EBITDA margin 70 basis points, and with a lower tax rate, resulted in adjusted EPS growth of 20% year-over-year, in line with our projections. Let's now move to Slide 6. Our third quarter revenue was $947 million, with reported and organic sales essentially flat year-over-year. Foreign currency was slightly favorable in the quarter, however, was lower than anticipated due to a stronger U.S. dollar. On a constant currency basis, we saw a strong sales performance in China which grew 20% year-over-year and improved sequentially from Q2. In addition, our Global Aligners business grew 10% and CAD/CAM grew double digits in the U.S. These improvements were offset by softer demand in key markets such as Germany and the U.S., most notably impacting imaging, implants and consumables. Despite flat revenue performance year-over-year and continued inflationary headwinds, adjusted EPS in the third quarter was $0.49, up 20%. The improvement was primarily driven by adjusted EBITDA margin expansion of 70 basis points to 18.2%, as a result of cost reductions from our restructuring program, effective cost management and the benefit of price increases implemented earlier in the year. We achieved this while continuing to invest in our commercial teams and infrastructure. In addition, our adjusted EPS growth was impacted by a lower tax rate due to a favorable geographic mix. In the third quarter, we generated $134 million of operating cash flow, up 23% year-over-year, driven by improved profitability, a lower build of inventory and the timing of accounts receivable and accounts payable compared to the prior year. Free cash flow conversion in the quarter was 93% compared to 88% in the prior year. As a reminder, our long-term goal is to achieve 100% free cash flow conversion on a consistent basis once we move past the cash outlays associated with our transformation initiatives. Cash and cash equivalents amounted to $309 million at September 30. And our leverage ratio improved to 2.5x, which is in line with our long-term targeted rate. In the third quarter, we returned $29 million to shareholders through dividends, with a total of $236 million returned year-to-date through a combination of dividends and share repurchases. As Simon noted, we also announced this morning that we intend to repurchase an additional $150 million of shares by year-end. Let's now turn to third quarter segment performance on Slide 7. Starting with CTS, our Connected Technology Solutions segment. Organic sales declined 4.6%. Within CTS, our global CAD/CAM business grew low single digits, driven by higher wholesale volume in the U.S. as distributors increased inventory ahead of DS World in September. Underlying U.S. CAD/CAM retail demand was also strong, particularly for Primemill and CEREC Primescan. The Equipment & Instruments business declined high single digits in the quarter due to softening demand for imaging equipment in the U.S. and Europe, which we attribute to rising interest rates and recessionary concerns in the market. In the near term, we are working with our distribution partners on financing alternatives to support our customers. Moving to EDS or the Essential Dental Solutions segment, which includes endo/resto and preventive products, organic sales declined about 1%, driven by lower volumes in the U.S. and Europe. We did see strength in the rest of the world, which mitigated some of this negative impact. Shifting to the Orthodontic & Implant Solutions segment, organic sales grew 3.7%. Aligners grew double digits for the fifth consecutive quarter. This strong performance was driven by growth in both SureSmile and Byte. SureSmile grew 13% and continues to benefit from market share gains, new product offerings and differentiated outcomes. Our direct-to-consumer aligner brand Byte grew 7% as we saw higher customer conversion rates. On a full year basis, we expect our Aligners business to grow double digits but anticipate single-digit growth in the fourth quarter given macro pressures in our largest markets. Implants & Prosthetics grew low single digits in the quarter, highlighted by increased demand for value implants as well as growth in China due to market share gains. On a sequential basis, China implants grew 30% in the third quarter. And wrapping up with the Wellspect Healthcare segment, organic sales grew 6.8%, with growth across all 3 regions. Wellspect also benefited from new product launches with Navina Mini, a minimally invasive irrigation product for bowel care and the LoFric Origo flexible, an intermittent male catheter, both of which have been well received by customers. For Q4, we expect a further acceleration of growth in Wellspect to about 10% year-over-year. Now let's turn to Slide 8 to discuss third quarter financial performance by region. U.S. sales declined about 1% due to lower sales of imaging equipment, implants and restorative products, partially offset by strong growth in aligners and CAD/CAM equipment. U.S. CAD/CAM distributor inventory levels increased sequentially in the quarter by approximately $20 million, driven by a normal build in advance of DS World Las Vegas in September. We expect that most of this will support installs in Q4. And because of this, inventory levels will likely be lower by the end of the year. Turning to Europe. Organic sales declined 2.8% due primarily to lower EDS and CTS demand as we continue to see prolonged recessionary impacts in Germany, our second largest market globally. Excluding Germany, organic sales in Europe were flat compared to the prior year. That said, we posted strong performance in the Wellspect segment and with our SureSmile aligners. The rest of the world organic sales grew 4.5% in the quarter, led by China, which delivered significant growth in implants and EDS. With the strong third quarter performance, our year-to-date sales growth in China has now turned positive with volume increases more than offsetting the pricing impact sooner than expected. Latin America, a smaller but fast-growing region for us, was another bright spot and grew double digits with improved performance in Brazil and Mexico. With that, let's move to Slide 9 to discuss our updated outlook for 2023. We expect to see current conditions continue to impact Q4. Our recent survey of over 1,000 dental customers, together with other industry research data, suggests that we're seeing negative trends, with decreased patient visits and increased cancellations. In addition, higher interest rates will likely result in deferral of some higher-end equipment purchases. These macroeconomic factors, coupled with a more unfavorable FX impact expected for the remainder of the year, have led us to lower our full year outlook. We now expect full year net sales to range from $3.90 billion to $3.94 billion. This includes an additional FX headwind of $25 million compared to our prior outlook. We expect organic sales to grow about 1% compared to our prior estimate of about 3% growth. Regarding Israel, I'd like to echo Simon's comments. Our thoughts are with all the families impacted, including our colleagues that call Israel home, and their safety is the top priority. Israel is an important country where we have operations, including 2 implant manufacturing sites that generate roughly 3% of our total sales. Initiatives are underway to move inventory, identify alternative resources, and limit potential supply disruptions. We continue to monitor the events closely. And while we have not seen a significant impact on our business to date, the situation remains fluid. Our Q4 outlook assumes minimal impact from the conflict in Israel. Moving to profitability. We estimate full year EBITDA margin to be greater than 17%, down from the prior outlook, due to lower expected sales and the impact of lower volumes and unfavorable absorption in our CTS business. Our updated outlook includes a lower tax rate due to geographic mix, largely driven by a reduction in pretax income projections in Germany as well as a lower share count due to the $150 million of additional share repurchases that are planned in the fourth quarter. With these updates, full year adjusted earnings per share is now expected to be in a range of $1.80 to $1.85, representing a $0.14 decrease compared to the midpoint of our prior outlook range. Of this amount, $0.11 is due to lower organic sales, $0.04 is due to lower CTS gross margins given lower volume projections, and $0.03 is from additional FX headwinds. This is partially offset by a lower tax rate, which is a $0.04 tailwind. With that, I'll now open the call for questions.

Thanks so much for the question. I appreciate the updated thoughts on the demand environment and outlook, that's very helpful. I was wondering if you could help us bridge like has anything changed in your sort of how you think about the operational steps that you need to take to get to that $3 in EPS for 2026 based on the sort of changing macro environment?

Elizabeth, thanks for the question. The short answer is no. I mean a lot of the progress towards the $3 is in our control, is not dependent on the macro environment. And so I will lay out next week at Investor Day what those specific actions are in quantification. Obviously, a piece of it is the macro environment improving, but most of the $3 bridge is things in our control, and so we're continuing to move forward with all the transformation initiatives that we previously talked about. That being the restructuring program. We're on track to deliver the $200 million of annualized savings by mid-2024. The SKU optimization and rationalization work that we're doing. The ERP work. And so all that's continuing, we're on track, and in our control. So nothing has changed relative to our plans.

Certainly, Elizabeth. As you are aware, we enhanced our commercial presence with DSOs last year and have a dedicated team managing our relationships with them. We are introducing our extensive portfolio to all of them. One aspect that particularly appeals to them is our capacity to streamline workflows and boost treatment acceptance, which was also reflected in our survey findings. We are gaining significant traction with DS Core among certain DSOs, who are keen on the potential benefits it can offer. However, as with many initiatives, it's crucial for us to concentrate on this growing segment. We will provide more details on this at Investor Day next week. Overall, the feedback we have received has been very encouraging, marking a substantial improvement over the past year.

You didn't mention any impact from issues at one of the major distributors. I'm curious if that had any effect during the quarter.

Yes. Kevin, thanks for the question. Short answer is no, there was no impact to Q3. Just to frame up the situation, though, I mean, Henry Schein is our largest distributor. We've disclosed the size of the impact to our business in our 10-K. But just to give you the rough order of magnitude numbers, annually, we do about $500 million of sales, which is about 12% of our consolidated revenues. Over half of those are in the U.S., about 20% in Germany. So those 2 markets alone represent 75% of the revenues. And it's mostly consumable products, so preventive and restorative products. Henry Schein has been a great long-term partner with us. We've been in regular contact with them over the last several weeks. We're doing everything possible to support what they need as they work through their internal issue. I think, most importantly, we're making sure customers are being supported during this transition period and continuing to get product. I would just tell you that it's difficult for us to quantify right now the potential impact to our fourth quarter results since we don't know how long the situation is going to last and whether or not the orders for our products are actually going to shift to any other distributors in the interim. So all that being said, I would just say we factored in some level of conservatism in our guidance for the potential modest level of disruption we may see in the fourth quarter. But no impact in the third quarter.

And Kevin, I would just add to that. Glenn has been in close contact with Ron South, the CFO, and I've been in touch with as well. So all levels of the organization or both organizations are working together to make sure that customers are impacted to the least extent possible.

That's very helpful, everyone. I have a quick follow-up. We've heard from two other publicly traded dental companies that have reported a significant decline in the fourth quarter. Are you experiencing the same thing? What trends are you seeing for October? Is that influencing the decline we're noticing? Do you have insight into the broader economic downturn? I'm trying to understand what is truly happening in the market. If something changed at the end of September and into October that has made the situation worse, could that be affecting the guidance we see across the industry?

Yes. So Kevin, I would say a couple of things. Number one, relative to September, obviously, we saw a falloff that we were not expecting. And obviously, you typically would see an uptick in September coming off the summer months and we didn't necessarily see that to the same extent as the previous years. When we look at October, I would just caveat it by saying we had not closed our books for the month of October. But when looking at our daily sales trends, it's pretty consistent with what we've seen in September. And if I exclude China from our September results where we had an easier comp, pretty much most of our businesses were down because of the macro environment. And clearly, there was a step down in September, and as we look at Q4 and how it started off, pretty consistent with what we see in September. So that's the reason why we've dropped our forecast here in the fourth quarter. And obviously, we spent a lot of time with customers and do the survey. So maybe, Simon, you can comment on some of the feedback we got on our survey as well.

Sure. Kevin, about 65% of our business operates outside the U.S. We conducted a global survey this quarter with over 1,000 respondents, including more than 100 from each of the locations we surveyed: the U.S., Germany, France, Italy, and China. The findings showed common themes. Patient cancellations have increased and volumes have decreased. In fact, 40% of respondents indicated they didn’t have enough appointments in their injury clinics. In Germany, sentiment dipped slightly, while the U.S., Australia, and New Zealand remained steady. While the situation isn't entirely negative, there are indicators regarding volumes and cancellations that are influencing our perspective. Brazil, for example, showed positive trends. It's a mixed situation overall, but as I mentioned in response to an earlier question, we believe there are opportunities for us in this environment. Customers are seeking more efficient workflows, higher treatment acceptance, and ways to conduct more profitable procedures. We feel well-positioned with the technologies we provide to support customers in growing their businesses and improving profitability despite the current macroeconomic challenges.

Super helpful. Thank you so much, guys. See you next week.

This is Sarah on for Nate. In light of the demand pullback and macroeconomic weaknesses, how do you anticipate the impact by segment heading into Q4, and what relative performance are you projecting for that quarter?

Yes. So I'll take that one. We're not going to give specific guidance by segment. I did give some color though in my prepared remarks. So in orthodontics, we're projecting to have low single-digit growth or single-digit growth. Obviously, that's a slowdown from what we saw the past 5 quarters. It's a combination of the macro environment for SureSmile and also Byte and some likely pressures we're going to see with the student loan repayments being put back in place. And so we're being a bit more cautious on ortho, although we still expect to see growth in the fourth quarter. We expect to see very strong growth out of Wellspect, A lot of that driven from new products. So, close to 7% organic growth in the third quarter. I mentioned double-digit growth here in the fourth quarter. So those are 2 segments that we expect to grow. When we look at CTS, we were down about 4.5% or so in the third quarter, modeling something probably pretty consistent with that as we go into Q4. So we're not expecting really any improvement in the overall segment there. And then for EDS, again, we're probably projecting to be flat, plus or minus a point there. So that just gives you some high-level color for the segments.

Have you seen any change to the ordering patterns from the other distributors you work with?

Yes, not yet. I think it's still too early. I think over the next couple of weeks will play out and see how the other distributors purchasing may change. But right now, we haven't seen any significant impact or shift in our business.

Let me try a different line here. Can you hear me now?

Yes.

All right. Good. So Simon, I'm trying to respect the waiting until the Analyst Day next week for some of the comments around the LRP, but it sounds like you are reiterating your commitment to that $3 number in 2026. I just want to make sure I'm hearing that correctly. And more importantly, I guess, Glenn, as I think about that $3 number that you put out at the beginning of this year, obviously, the U.S. dollar has been much stronger this year, we've now got some end market concerns that have flared up for sure, we've got inflation that looks like it's staying more persistent and probably higher than would have been contemplated at least a year ago. So I guess my point is or my question is, have you tried to quantify how much incremental headwind just from factors outside of your control that have happened since you put that $3 number out? And Simon, I would assume you're not going to then cut back R&D or go-to-market commercialization spending or anything. So how do you kind of bridge that incremental headwind that has come up here across all those issues in the past year?

Firstly, we will be reaffirming our $3 in '26 at our Investor Day next week, and Glen will walk through the bridge from where we are to the $3 during his session next week. For sure, we do not intend to reduce how we go to market or how we innovate. We simply need to be more judicious with where we innovate in and what we innovate in and how we spend our SG&A dollars, so that we can get after, in my response to Jon's question a moment ago, we can get after volume with our sales force in all our geographies. So commercial and R&D are sacred to us. We just have to spend our money more wisely in those areas.

Yes. Fair enough.

Jeff. Sorry, I was just going to comment on your other part of your question. So relative to the headwinds and impact to our $3. Keep in mind, when we laid out the $3 target, our guidance for this year was $1.80 to $2. So we're still within that guidance range, even though we've had a recent reduction. So we had just started off the year stronger, and obviously we're dealing with some headwinds at the moment. But when we laid that out, we're at $1.80 to $2 and we're pretty much in that range. So that's why we're still confident that we can get to the $3. I will discuss more next week the path to get there. But probably the most important message and takeaway is most of the path to get to $3 is in our control and things that we've already completed or are in process. And so probably 2/3 of the way there is all within our control and not dependent on the macro environment. So I'll give more specifics next week, but I think that's a key point on why we're still confident we can get to the $3. Obviously, if the macro environment extends and is prolonged for a long period of time, it will be much more challenging to get there. But our view is that this is more of a short-term acute situation on the macro environment.

Thank you, Jeff. Implants represent a fascinating business with strong growth and good margins, although we haven't historically excelled in this area. Previously, we discussed the portfolio survey we conducted, and we completed that in Q3 with over 2,000 respondents. The feedback was overwhelmingly positive regarding our offerings across all categories, including implants. The competition in the implant sector seems tighter than in other areas. Our customers, numbering over 2,000, indicated that we have a strong portfolio in implants. However, we need to improve the capabilities of our commercial teams and enhance our investments in clinical education from previous years. Let me address the second part first. This year, we have made substantial investments in restoring relationships through our clinical education programs. Earlier this year, we held a World Implant Symposium in Greece with over 450 attendees. We also recently hosted a session for Polish clinicians in Warsaw focused on implants. We are committed to rebuilding our connections with implantologists through education. Regarding the capabilities of our sales force, we've faced turnover in our implant sales team over the past few years, which has reduced their overall effectiveness. This turnover has reached about 50% over the last 12 months, including new hires. We are heavily training our new team members, with a second or third training session conducted in May, and I believe it's starting to make an impact. The challenge we face is that the lost accounts represent substantial volume, and while we're acquiring new accounts, it isn't yet enough to counterbalance those losses. Nonetheless, we just completed a comprehensive business review with every sales manager in the U.S., revealing promising signs of engagement with both implantologists and their referral networks. While this process is taking longer than we had hoped, we are dedicated to enhancing our team's capabilities, rebuilding relationships with our customers and their networks, and investing in customer education, which were the key takeaways from our survey.

This concludes today's conference call. Thank you for participating. You may now disconnect.