Welcome to the Q1 2025 Dentsply Sirona Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the call over to Andrea Daley, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the Dentsply Sirona first quarter 2025 earnings call. Joining me for today’s call is Simon Campion, Chief Executive 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 on the Investors section of our website 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. 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 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 Q1 2025 earnings call. Today, I'll cover our full agenda as Herman Cueto has completed his interim CFO assignment with us. My prepared remarks will include an overview of our recent performance, our Q1 financial results, and an update on our 2025 outlook. I'll then finish with our foundational initiatives and strategy. Before we get started, I want to provide you with some thoughts and comments on the global trade situation and how we're viewing it relative to our business. As a multinational company operating in over 100 countries with a global supply chain, the current and potential tariffs create headwinds and risks in our business. We are confident that the work we have done to strengthen our foundation improves our ability to navigate these potential challenges. As the situation began to evolve, we developed plans to mitigate potential impacts to our business. We continue to monitor the changing landscape and are poised to pivot as necessary. Now, let's start with some key points on Slide 3. In the first quarter, we continued to make progress towards driving reliable and sustainable performance from Dentsply Sirona. Let's run through a few highlights. In Q1, we delivered organic growth in two of our three global regions and continued to improve operational efficiency. Organic sales exceeded our expectations, and while down 4.4%, it did include a negative 4% pipe impact. Imaging performed well in the quarter with our heightened focus resulting in growth across all regions. Wellspect Healthcare delivered another quarter of growth across all geographies, fueled by new product introductions and solid execution. Europe also delivered growth for the second quarter in a row, while Germany, our largest market in Europe, and our second largest market globally, delivered a third consecutive quarter of growth. We were pleased to see EBITDA margin expansion and EPS growth in the quarter, reflecting our transformational savings, improving operational efficiency, and discipline. We continue to drive internal financial discipline while also seeking to improve our commercial excellence, including customer experience, which is a work in progress. Our approach for IDS this year serves as a great example of this. While we spent 60% less than we did in 2023, our sales results exceeded those in 2023, a testament to the innovation that we continue to deliver, focused on enabling great clinical outcomes, improving efficiency for our customers, and enhancing treatment acceptance rates. Our commitment to customers and investors remains on delivering meaningful progress through thoughtful transformation, customer-centric product innovation, and disciplined execution. During the first 2 weeks of April, we once again conducted our quarterly customer survey with over 1,100 respondents. As planned, we also began to leverage our virtual sales team to gather customer input, reaching nearly 1,000 additional respondents. Results indicate that our major markets remain relatively unchanged from a patient volume and procedure utilization standpoint. Not surprisingly, we saw a drop in US census sentiment with about half expressing concern or expecting impact from rapidly changing economic conditions and potential implications on patient footfall and treatment acceptance rates. Despite this, results indicated dentists remain strongly interested in driving efficiencies through workflow improvement. In Japan, dentists also see increased usage of digital equipment as a tremendous opportunity. This feedback, while in a period of dental market uncertainty demonstrates a clear alignment to our strategy, enable efficient, effective, and profitable dentistry by providing tangible, meaningful, and measurable outcomes for our customers through product innovation and connected technology. For 2025, we are maintaining our outlook for organic sales and adjusted EPS while increasing reported sales for foreign currency translation changes. This outlook does reflect the current tariffs. Despite the increased uncertainty in the macroeconomic environment, we delivered Q1 ahead of our expectations and remain confident in executing against our commitments. We will cover more details on our outlook a little bit later. Given the current environment, we are also taking a proactive and disciplined approach to managing our balance sheet with actions taken in the quarter to strengthen our positioning. Now before we discuss financial results in more detail, I'd like to share some recent business highlights on Slide 4. Starting with innovation. In March, we took the opportunity at IDS to invite our customers to experience the power of connected dentistry. 40 years ago this year, Dentsply Sirona propelled dentistry into a new era with the introduction of CEREC. For those dentists who have embraced this transformational technology, it delivers exceptional care for their patients at the chairside while growing their businesses meaningfully. With the introduction of our DS core ecosystem in 2022, we initiated the transition into the next chapter, digitally connected dentistry. As we continue to expand its functionality and connectivity with our CAD/CAM and imaging platforms, we believe our technology can further expand the penetration of digital dentistry. We see evidence of this with the platform continuing to gain traction and has now surpassed 42,000 unique users, 50,000 connected devices, and we are processing over 100,000 lab orders each month. We continue to add new capabilities to the platform, and in Q1, we added DS Core diagnosed complementing our 3D imaging solutions. This new capability brings the flexibility and benefits of the cloud DS Core workflow to CBCT and integrates an AI-powered 3D rendering tool for better patient communication. This is currently available in Europe and pending 510(k) clearance in the U.S. We also enhanced Primescan 2 with new functionality and accessories. Functionality enhancements include a 50% reduction in internet speed requirements, 90% faster SureSmile simulations, and integrated carrier detection that is now available in certain markets and is also pending FDA clearance in the U.S. We believe these additions will facilitate an improved scanning experience and increased patient engagement. This platform embodies our clear intention to enable seamless connectivity, faster workflows, and smarter integrations. This leads to our customers experiencing added flexibility, improved efficiency, and with that, the opportunity to improve treatment acceptance rates, all of which drives practice growth. Our NPD discipline and pace is also evident in our approach to seeking regulatory clearances. Already this year, we have received three 510(k) clearances with five additional filed and pending. Moving to customer engagement and experience. In Q1, we launched a revamped company and SureSmile website to improve customer interactions. The redesigned dentsplysirona.com improves navigation, search functionality, and usability, making it easier for users to find information, contact us, and to purchase products. The new suresmile.com is designed to complement our company website, creating a cohesive and integrated experience between the two sites for our customers. Additionally, and in parallel, we have also been hard at work designing a new e-commerce platform to include self-service capabilities, simplify returns, leverage AI to drive customer engagement, and optimize the reorder process. Our goal, ultimately, is to make our digital platform simple, intuitive, and easy to use. I've spoken in a variety of our investor engagements, including these earnings calls, about the robustness of our portfolio. While we continue to work earnestly at improving this portfolio for the reasons we've just discussed, we also recognize that our customers experience pain points when they engage with Dentsply Sirona. To ensure we capture these, we have been closely engaging with dozens of customers over the past couple of months. We also recently kicked off an in-depth assessment of our U.S. customer base to better understand how and where we need to improve. We expect this work to provide key insights that we can use to develop the next phase of our action plans, focusing on improving our interactions and delivering what customers need and care about most. As with everything we do, we are taking a thoughtful, data-driven, and disciplined approach to make well-informed customer-centric decisions. Now, let's wrap up our highlights with operational updates. In March, we announced the appointment of David Ferguson as SVP of our Global business unit, managing our dental product portfolio. David is a seasoned healthcare executive with extensive experience in developing and executing strategic growth plans, as well as building and aligning high-performance teams. We continue to make progress on ERP modernization with two additional phases in the U.S. rolled out. Both deployments have gone as expected with minimal disruption. We have leveraged learnings from each launch to drive continuous improvement into subsequent deployments. Lastly, and importantly, we are delivering on plans to optimize our global supply chain. This quarter, we completed the closure of one of the manufacturing sites we had announced last year, bringing the total number of manufacturing and distribution sites now closed to 10 since we started this work. Our supply chain team continues to make robust progress on optimizing our network, improving efficiency, driving our costs, and enabling a better customer experience. Let's move to Q1 results on Slide 5. Our first-quarter revenue was $879 million, representing a decline of 7.7% over the prior year quarter. On an organic basis, sales declined 4.4% as foreign currency negatively impacted sales by approximately 330 basis points. Byte had a negative 4% impact, representing most of the decline. On a constant currency basis, sales highlights in the quarter included double-digit growth for equipment and instruments, SureSmile performance in Europe and the rest of the world, and continued momentum for Wellspect Healthcare. These improvements were offset by declines in CAD/CAM and IPS. Despite lower sales, adjusted gross margin was roughly flat. Adjusted EBITDA margins expanded 220 basis points, benefiting from lower operating expenses and reflecting our transformational savings, internal financial discipline, and an $8 million Byte customer refund adjustment in the quarter. Adjusted EPS in the quarter was $0.43, up 3.7% from the prior year, largely due to higher adjusted EBITDA margins and a lower share count, partially offset by a higher tax rate. In the first quarter, we generated $7 million of operating cash flow compared to $25 million in the prior year quarter. The year-over-year decline is primarily attributable to timing of cash collections and a higher build of inventory. We finished the quarter with cash and cash equivalents of $398 million on March 31. Our Q1 net debt-to-EBITDA ratio was 3x, consistent with the prior quarter. And in Q1, we entered into a bridge loan agreement to pay down short-term debt. 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 increased 0.4% due to growth in Europe and the Rest of the World, partially offset by lower volumes in the U.S. EDS performance in the quarter reflected stable patient traffic, which I spoke to earlier when sharing our customer survey results. Shifting to the Orthodontic and Implant Solutions segment, organic sales declined 17.7% with a net negative impact of approximately $40 million year-over-year or about 13%. SureSmile declined slightly in the quarter due to the prior year loss of a DSO customer in the U.S., partially offset by double-digit growth in both Europe and the rest of the world. We continue to see aligners as a strategic growth opportunity for us globally. Implants and prosthetics declined mid-single digits in the quarter, driven by lower lab volumes globally and lower implant sales in the U.S. and Europe. Sales of premium implants grew nominally as our EV family of implants and prosthetic solutions outpaced declines in legacy brands. Wrapping up our dental performance, CTS, our Connected Technology Solutions segment, had organic sales decline 0.5% versus the prior year quarter, largely due to declines in CAD/CAM, predominantly in the U.S. Growth in equipment and instruments offset the majority of this decline, with imaging performance as a bright spot, posting growth across all three regions as we benefited from an easier comp with the prior year, while navigating a softer retail environment. Our Treatment Centers business also contributed to growth as a result of a one-time delivery of equipment for a large new institutional customer in EMEA. Moving to Wellspect Healthcare, organic sales grew 8%, with sales growth across all three regions as we continue to benefit from new product launches and execution. As a reminder, in Q2 of this year, we will have a more difficult comp due to a distributor we onboarded in the prior year period. We continue to expect this business to deliver mid-single-digit growth for the full year. Now, let's turn to Slide 7 to discuss first quarter financial performance by region. U.S. organic sales declined 14.9%, primarily due to the negative 9.8% impact from Byte. CAD/CAM and IPS also declined in the quarter, which were partially offset by growth in Wellspect and imaging. Changes in distributor inventory for CAD/CAM contributed to the year-over-year decline. Distributor inventory levels in the U.S. increased sequentially by approximately $4 million compared to an approximately $9 million sequential increase in the prior year quarter. Meanwhile, U.S. imaging growth benefited from changes in distributor inventory levels. Distributor inventory in the U.S. increased sequentially by approximately $6 million compared to an approximately $7 million decrease in the prior year quarter. We ended Q1 at about historical averages for CAD/CAM and imaging distributor inventory levels. Turning to Europe. Organic sales increased 1.1%, driven by performance in Germany, equipment and instruments, SureSmile, and Wellspect. Germany, our largest market in the region, posted another quarter of growth, driven primarily by CTS. While we remain cautious on the German economy, we have seen encouraging signs of a rebound, particularly in equipment. SureSmile posted double-digit growth as it continues to show positive momentum in the region. The organic sales growth for Europe was partially offset by declines in CAD/CAM and IPS. Rest of World organic sales grew 3.1% with growth in imaging, Wellspect, and implants in China as the primary drivers, partially offset by a decline in CAD/CAM. With that, let's move to Slide 8 to discuss our updated outlook for 2025. We are maintaining our 2025 outlook for organic sales and adjusted EPS. Organic sales are expected to be down 2% to 4% with a 2% Byte impact on the full year. We are revising our outlook for reported sales to reflect the change in foreign currency rates as of the end of Q1, and we now expect reported sales to be in the range of $3.6 billion to $3.7 billion, above our previous range of $3.5 billion to $3.6 billion. Moving to profitability. We are increasing our outlook for adjusted EBITDA margin to greater than 19%, attributable to the positive impact of FX rates drawing through the P&L. Adjusted EPS remains unchanged from our prior guidance in the range of $1.80 to $2, which reflects the current state on tariffs and trade policy. Now let me provide some color on our expectations for the second quarter. We expect second quarter organic sales to decline mid-single digits versus the prior year period, primarily as a result of the negative sales impact from Byte. We do not expect an impact from foreign currency based on rates at the end of the quarter. Sequentially, reported sales are expected to increase in the second quarter based on normal seasonality and the positive impact from sales associated with IDS. We anticipate second quarter adjusted EPS will be up year-over-year, primarily due to adjusted EBITDA margin expansion, offset by a higher tax rate. Now let's move to our strategic update on Slide 9. As we continue on our path to improve all aspects of our company, we've also adapted our approach along the way as needed. We've shared our formula for growth, focused on customer and return-centric innovation, clinical education, and commercial excellence. We know that growth won't come by chance. It will come from the choices we make, the focus we bring, and the value we create and deliver. Our focus on growth must also be accompanied by a scalable and lean cost structure. For 2025, we've embarked on the next set of strategic actions. We deliver best-in-class innovation and believe we are uniquely positioned to shape connected dentistry across clinical procedures. We continue to deepen our customer focus and clarify our value proposition, which, as I've noted, centers on enabling great clinical outcomes, improving workflow efficiency, and enhancing treatment acceptance rates. We are also evolving the nature of the conversations we have with our customers to be value-oriented. Our innovation pipeline is healthy with the projected value of the NPD portfolio more than doubling over the last 12 months. So the benefits of cloud-based software and solutions are bringing new capabilities and functionality to the market at an accelerated pace. Historically, CEREC software updates could take up to two years to complete. We are now leveraging the benefits of our cloud-based solutions to develop software updates on a more frequent basis as often as quarterly and releasing those updates instantaneously. And we're doing so more efficiently by increasingly leveraging AI tools alongside our software development teams supporting co-generation and automating test creation. I've already spoken about our most recent enhancements for both Primescan 2 and DS Core. With each new release, we see increased adoption and stickiness as we deepen the connectivity of our digital ecosystem. We've had some feedback from our customers on opportunities to further enhance the experience with Primescan 2, and we have rapidly implemented changes such as improved compression and simulation speed and we'll continue to adapt the platform to meet customer needs. We are recognized as a leader in clinical education, and we continue to fulfill our commitment in this area. We've already kicked off DS World 2025 events with our first held in Dubai. This was the third year we hosted the event in this market, and we saw more than a 10% increase in participation as well as higher sales compared to last year. We're also broadening and deepening our customer reach and enhancing our customer experience through our virtual sales team, a team focused on the U.S. market and based in our Charlotte headquarters. This team now makes over 2,000 customer calls a day, driving sales, providing quality leads to our field-based sales team, and gathering customer insights. As we've spoken about before, virtual sales plays an important role in creating our own demand. This team has now reached out to over 21,000 accounts, approaching $1 million in revenue and generating several million dollars in leads. We continue to shape the organization and deliver on our initiatives to strengthen the company's foundation. Our ERP modernization continues with more deployments planned later this year, including the remaining U.S. deployments. We expect to begin additional European launches later in 2025 with completion expected in 2026. We also continue to deliver on our supply chain transformation and SKU optimization work. Now, I'll wrap up on Slide 10 with a few summary remarks. Q1 results exceeded our expectations. That said, we are not satisfied and rest assured, we will keep driving towards reliable, sustainable performance. We are maintaining our 2025 outlook for organic sales and adjusted EPS. Our financial discipline and operational efficiency are improving, which will benefit us as we navigate through an increasingly uncertain external environment. We are executing with intention, reshaping the organization, and driving efficiencies. We are also committed to enhancing the customer experience and investing for the future. And with that, I will open it up for questions.

Thank you. At this time, we'll conduct a question-and-answer session. Our first question comes from Elizabeth Anderson of Evercore ISI. Your line is now open.

Hi guys. Good morning and thanks so much for the question. One, I was hoping that you could expand a little bit more on tariff impact? I know you said it was incorporated in your guidance, and I appreciate that that's super helpful and imagine that has some impact. But I was just wondering if you could help us sort of spell that out in a bit more detail.

Good morning, Elizabeth. We have included the current tariffs in our guidance based on their present state. We estimate an impact of approximately $0.10 today, which we are addressing throughout the year. Annually, we believe our tariff exposure is about $50 million. A significant portion of our manufacturing is outside the U.S., and nearly half of our sales in the U.S. come from products produced abroad. For any additional tariffs, we have contingency plans in place, but we are not ready to comment on potential retaliatory measures from Europe at this time.

Got it. That's really helpful. Thank you for the additional information. I also wanted to ask for an update on the CFO search. I understand Herman is currently in an interim role, so I would like to hear your latest thoughts on that as well.

Yes. So we're making good progress on that, Elizabeth. We have a number of candidates in, I would say, in the late phases of this process. So we are hopeful that we're going to get Herman back in the not-too-distant future.

Great. Thank you so much.

Thanks, Elizabeth.

Thank you. One moment for our next question. Our next question comes from Michael Cherny of Leerink Partners. Your line is now open.

Good morning and thanks for taking the questions. Maybe if I can just dive in a little bit on the orthodontic side a little further. Obviously, the byte roll-off continues. But as you go through that process, can you give us a little more sense on what you're hearing from your customer base, kind of how the SureSmile pitch has gone beyond here. And I'm sorry if I missed this, Simon, but any differences in your view on the eventual potential expansion beyond the current GP market?

Yes. Good morning, Michael. So let me deal with the second part first. As you know, we redeployed some of our byte resources into different parts of our business. And they've contributed to the new dentsplysirona.com and suresmile.com website and are also working on e-commerce in parallel to all of that, the software and R&D teams at the moment, collecting inputs from customers about what the new user interface needs to look like. And so we're making good progress on that, and we expect to be in a position to improve that by the end of the year or maybe into early next year. It's clear to us that we do need to reengage with the orthodontist community. The vast majority of the volume is in that area. We think we have a meaningful solution for them with SureSmile and all the benefits that we think customers gain from that customers and patients, but we do need to improve the user experience because it's not just about the orthodontist, him or herself, it's about their staff members having to navigate new software and the challenges that causes. So I would say we will be providing more information on our intentions over the next quarter with respect to the orthodontist community.

Perfect. That’s it for me now. Thank you.

Thank you. One moment for our next question. The next question comes from Kevin Caliendo of UBS. Your line is now open.

Thank you very much. This is Dylan Finley on for Kevin Caliendo. Starting on first, some impressive execution on EBIT margin. In particular, it looks like OIS had some favorability at about a 17% EBIT margin. First of there, is this like a reasonable run rate? Just start with looking at the rest of the year? Any context behind that number?

Yes, good morning, Dylan. Let me provide a broader perspective beyond just OIS. We definitely observed an improvement in the first quarter. When we issued our guidance in February, we mentioned some inconsistency in margin profiles throughout the year. We're pleased to have been able to stabilize that. I wouldn’t suggest that our Q1 results will precisely reflect our performance for the remainder of the year. However, across all our business segments, we are focused on driving growth while managing our SG&A expenses carefully, which is positively impacting our overall financial performance.

Very helpful context. Thanks. And then just one last follow-up. When I look at EPS, your guidance for Q2 being up on a year-over-year basis sort of implies at least $0.92, $0.93 in the first half of the year. Typically, seasonally, we expect to see 4Q equipment really drives the bottom-line result there. So, context, I guess, perhaps behind why Q2 might be a bit soft. Are you conservative? Are there implications from a tariff perspective? Anything on that?

From a tariff perspective, I would say there will be more changes towards the end of the year. Q2 is expected to follow the usual seasonal patterns, Dylan. That’s about all I can share on that topic. In our survey, foot traffic remains stable in preventative and restaurant sectors, though there is some slight negativity regarding tariffs in the market. We’ll have to see how that develops, as some people may delay their purchases. Overall, we are experiencing normal seasonality and the expected impact of tariffs later on.

Thank you.

We're having some challenges hearing you clearly. If you can please ask for the next question? David, it looks like you're next in queue. Can you hear us? And do you want to go ahead with your question?

Yes, great. Good morning. Hopefully, you can hear me okay. So, maybe I'll start on CTS. So, the mix there was interesting to see. So, in equipment, growth obviously accelerated. I wanted to ask how much of that was driven by the comp versus any improvement in kind of underlying demand? And then on the CAD/CAM side, what was the impact of dealer inventory? And what are you seeing in iOS price and volumes?

Yes. Good morning, David. Let me address the inventory first. As mentioned in our prepared remarks, inventory decreased in the CAD/CAM segment but increased in the imaging segment. Overall, it seems to balance out. We are maintaining inventory levels that align with historical norms across our main partners, so there's no significant impact there. Regarding pricing for the scanners, we haven't observed any notable changes this quarter. For our CAD/CAM business, there was approximately a $1 million decline compared to the previous year, but it's not substantial. That covers everything on that front.

Yes. Did you have one more part to your question there, David?

Yes, I think that covers most of it, but I have a follow-up question regarding implants. On the US side, it seems there was a decline this quarter. Are you noticing any progress in that area? Additionally, premium grew slightly, as mentioned in the script. Can you provide any details on its performance specifically in the US? Thank you for addressing my questions.

Premium grew slightly. The decline we experienced with some of our legacy brands was balanced by growth in the EV family, which was encouraging. We have engaged with customers frequently over the past few weeks, and a recurring theme has been the significance of our commercial teams and the relationships the representatives maintain with our implant customers, both from a clinical and organizational standpoint. Customers have communicated that we are still in a rebuilding phase, emphasizing the need for our representatives to possess clinical expertise and strong relationship-building skills, which naturally take time to develop. We have completed retraining our sales representatives on the implant side to enhance their clinical knowledge. Currently, we are also retraining our sales managers to better understand effective sales management practices. While this past quarter was disappointing, particularly regarding implants, we remain committed to improving our performance and the quality of our commercial team, as well as strengthening our relationships with these customers. This area has been a significant focus for us over the past two years, and it's disappointing that we have not achieved the progress we had anticipated.

Great. Thanks so much for taking my questions.

Thank you. Our next question comes from Vik Chopra of Wells Fargo. Your line is now open.

Hi, good morning. This is Simran on for Vik. Thanks for taking the questions here. Just a quick follow-up on the tariff impact in 2025, what mitigation strategies do you have in place? And is that assumed in the $0.10 that you're guiding to for the year? And maybe just on mitigation, what are some strategies you can deploy more near-term? And then what do you have sort of longer-term?

Yes, good morning. At this moment, there are no mitigation strategies included in the $0.10 we're focusing on. Regarding future considerations, we currently lack certain manufacturing capabilities. For example, we have one type of endo file produced in Switzerland and another made in the U.S. We are actively working on transitioning a U.S. customer to a file manufactured in the U.S. Additionally, we are building strategic stock in select areas and planning to import it into the U.S. to prepare for future developments. We believe we can also redistribute some of our inventory from our distribution centers worldwide to U.S.-based sites, which would be beneficial. Furthermore, we will continue to manage our expenses carefully moving forward. A potential lever we are considering, although one that may be met with reluctance, is implementing strategic price increases. Our customers have already shown some concern about the implications of this, especially with the pressures on dental procedure reimbursements. However, if we pursue this path, it would be done strategically and selectively.

Okay, great. And maybe just for my follow-up, could you provide any timing updates or visibility on the resolution of the German tax situation, sort of what is the current status of working with the authorities in Germany and responding to their work class?

Yes, I understand that many people are wondering about this, including us. The best answer I can provide is that we are actively working and meeting with them. We have shared a lot of documents and are cooperating. However, at this moment, I don’t believe they have a timeline for resolution, and consequently, we don’t either. It seems likely that the resolution is still some time away, and we cannot currently define its magnitude. Nevertheless, I want to emphasize that we remain very confident in our position. Should any ruling not be in our favor, we will appeal and pursue this matter to the end. We received plenty of guidance during the merger process and continue to be informed that this is typical, most recently in Q1. Our position remains unchanged, so there's nothing significant to report at this time.

Okay, great. Thank you.

You're welcome.

Thank you. Our next question comes from Jon Block of Stifel. Your line is now open.

Great. Thanks and good morning. Simon, maybe I'll just try to wrap up some questions in one. If you can maybe provide a bit more color just on current trends. Simply put, there was really big 1Q upside but no change to the full-year guidance. And I get it, there's certainly a ton of moving parts which you touched on a bit. But is it just when we look back, it was sort of a good amount of conservatism to the 1Q guide? Or is there anything to call out that you're seeing as you look forward by product line or by region? And then I'll ask the follow-up.

I think we had a few one-time events in Q1 that contributed nominally to our overperformance. We're being prudent regarding the outlook for dental. According to our survey, which had over 2,000 respondents, there hasn't been any significant change in foot traffic within dental practices, and customer sentiment around purchases in North America remains stable. We are pleased to see some improvements in our performance in Germany. However, the interesting data we gathered shows a decline in sentiment around Liberation Day, where concerns shifted from not concerned to somewhat concerned, but the overall change was slight. Given the many factors affecting the macroeconomy and dental sector, we're taking a cautious approach and will monitor how things unfold.

Got it. That was great. That was very helpful. And I don't think anyone are used to being prudent. I think just to shift gears for the second question, SureSmile was down. I think the words were slightly year-over-year and again, there's still that drag from the DSO customer. But just to push you a bit like when you hit the gas in ortho and you feel like the software is where you want it to be, what's your strategy on how to compete or how to win? And I just asked that because when I look at that landscape, you've got a player from China that's been very aggressive on price. You have another player that's able to leverage their wires and brackets franchise, and then you have sort of the big incumbent, if you would. So maybe just talk to us a little bit on where you see the opportunity to go into a market like that and compete and win again when the software is where you want it to be? Thank you.

Thank you for the question, Jon. I believe software is an area we can leverage effectively. Our DS Core and scanner combination is powerful and should attract interest. Additionally, regarding pricing, we have maintained a competitive position with our aligner offerings. As we listen to customers across the board—whether they are general practitioners, endodontists, or orthodontists—they consistently express the need for efficient procedures. They want patients to be seen quickly, accept their treatment plans, and avoid coming back for refinements. We know that our device requires fewer attachments, making the process more efficient for practitioners, and our fewer refinements mean patients won't have to return frequently. Together, these factors create a value proposition that resonates with the orthodontic community. Naturally, we recognize that competition in this space is vigorous and there’s significant room for rivalry. The aligner market is still largely untapped when considering the total population, and we have unique opportunities with robotic wires and our advanced SureSmile software. We acknowledge the need to improve our software, reorient our sales team, and cultivate a strong value proposition to attract customers away from competitors. Lastly, we previously conducted a comprehensive survey involving around 250 orthodontists. They have various brands available to them, and we need to elevate our brand's visibility to capture more market share. Currently, 80% of the volume comes from orthodontists, and while we expect to grow modestly with general practitioners, meaningful growth hinges on our presence in the orthodontic market.

Understood. Thank you.

Thank you. Our next question comes from Jeff Johnson of Baird. Your line is now open.

Thank you. Good morning. Simon, I believe we are all learning during this earnings season regarding the questions about tariffs. If I could ask a couple more clarifications, I don't want to belabor the point. Regarding the $5 million annualized figure you mentioned and the $0.10 EPS impact, it seems like about $25 million is being accounted for this year to achieve that $0.10. Should we anticipate that this $25 million will increase to $50 million annualized next year, or do you believe you can mitigate some of that moving into next year? Additionally, does the $50 million annualized figure you provided assume the current 10% tariff outside of China, or does it reference the higher Liberation Day tariff rates that were in place in certain European markets? Lastly, concerning tariffs, do you have significant exposure to products made in the U.S. that are sold in China, or China-made products sold in the U.S.? Or is most of your business Europe-based? Thank you.

I will try to recall all the parts of that question, Jeff. We expect to have very limited exposure to China. We have manufacturing there, but less than 5% of our materials are sourced from China, so it's very minimal. The $0.10 does equate to approximately $24 million to $25 million. Regarding any further exposure, as I mentioned in a previous answer, we have not planned any mitigation efforts such as stock builds, product swaps, or additional cost synergies, nor have we considered price increases in certain strategic areas. If anything were to change, it would be based on the current 10%. If the Liberation Day numbers are released, we would need to assess what actions to take next. In anticipation of that, we have started strategic stock builds and are considering relocating products from distribution centers worldwide to North American distribution centers, so that any potential impact from the Liberation Day 2.0 tariffs would be mitigated by having products already in the country.

All right. That's helpful. Thank you. And then just a cash flow question, if I could. I know you don't guide to cash flow. But CapEx has been up kind of in that upper $150 million to $180 million to $200 million over the last couple of years, free cash flow kind of down in that low- to mid-$100 level the last couple of years. Should we expect CapEx to come down at all this year, free cash flow to go up? And just on the short-term funding that you talked about, it seems like some high interest rate on that or a little bit higher interest rate, I guess, I should say, to be fair. So just wondering, how are you feeling on cash? Is there any kind of cash issues we need to be worrying about here in the short run? Thank you.

Regarding capital expenditures, we are currently engaged in several significant, one-time projects like the ERP implementation. We anticipate that these will start to diminish soon. Our ERP initiatives have been successful and are aligned with our initial budget expectations. As these projects wind down, we expect an improvement in capital expenditures and an increase in free cash flow. In terms of financing, we are taking a cautious approach. We had an opportunity for short-term financing, which we decided to pursue. There are no other issues we needed to address, and this move provides us with some flexibility amidst the current economic conditions.

Fair enough. Thank you.

Thank you. Our next question comes from Jason Bednar of Piper Sandler. Your line is now open.

Good morning, everyone. I would like to follow up on Jon Block's initial question to clarify our insights regarding the US market. Simon, you pointed out some cautious commentary on US dentist sentiment from your recent survey. I'm trying to understand this in relation to what you're observing at both the patient and doctor levels in real time. Are you noticing any hesitancy among patients to proceed with treatments, especially in areas such as orthodontics and implants? Additionally, are doctors temporarily delaying their equipment purchasing decisions? Or do you believe your survey simply reflects general mood and concern, rather than indicating a significant shift in the market?

Good morning, Jason. I would say that both of the surveys we've conducted regarding foot traffic show no significant change in the U.S. regarding purchase intentions. Over the past few weeks, I've visited about 17 customers and asked them about foot traffic, patient treatment acceptance rates, and their intent to purchase. These customers indicated they haven't noticed any changes in patient traffic or treatment acceptance for the procedures they offer, and they would proceed with equipment purchases if needed. In the survey of 1,000 individuals from our inside sales team, the majority were simply waiting to see how tariffs would play out. They did not express plans to switch to lower-priced consumables or to pause capital equipment purchases. Overall, the survey of over 2,000 customers shows little change at this time; the situation is neither improving nor worsening. Given everything we are hearing, I believe that the survey reflects a steady state.

Okay. All right, that's helpful. And maybe over to another important market for you. It's really good to see that Germany has been performing better, some durability on the growth. As we think about comps in that market in particular, I think you have maybe one or two, maybe three more quarters of really favorable comps, but I think it's just maybe a quarter or two. How do you think that market performs once we anniversary those easier comps? Do you think that durability you've seen in the last few quarters, does that sustain as we exit this year and look beyond?

Yes. I believe we have about one more quarter of favorable comparisons. We've experienced three consecutive quarters of growth. Regarding our survey from Germany, the situation remains stable. Our execution in Germany has definitely improved, and our CTS business, especially in imaging and instruments, has performed well there. So, to answer your question, we are confident about our future in Germany. In fact, out of our top 11 countries, we saw growth in six during Q1, which we are happy about. There are specific areas in EMEA where we are now closely focused on replicating our German success. Hopefully, in the next few quarters, we will be able to share performance updates beyond just Germany.

All right. Thank you.

Your next question comes from the line of Brandon Vazquez. Brandon, go ahead, your line is now open.

Hi everyone. Thanks for taking my question. Simon, I have one for you first. Regarding DS Core, it has been gaining significant scale and attracting many subscribers. Can you discuss the key operating metrics you are focusing on beyond just the total number of users? How do the metrics for accounts on DS Core compare to those not using it? What excites you internally when you analyze the metrics of DS Core users?

Good morning, Brandon. We are satisfied with our current position. As I mentioned earlier, we now have 43,000 users. A key metric to note is that we have exceeded 50,000 connected devices and are processing over 100,000 orders monthly through our labs. These are significant indicators for us. Additionally, we are observing a rise in the number of accounts subscribing to the DS Core service. While the current impact is minimal, we anticipate growth as we enhance its capabilities. This development is certainly contributing to our marketplace presence, and customer feedback has been positive. Personally, I experienced it last week during a visit to my dentist, and it truly transformed the experience of being in the dental chair. We have a lot of innovations in the pipeline regarding workflows integrated with DS Core. We previously mentioned that the first phase of implants on Core will be launched later this year. We have also increased the speed of our SureSmile simulations by 90% when using Primescan 2 in conjunction with DS Core. We are dedicating substantial effort to ensure this ecosystem enhances our future performance. Our main focus is to integrate consumable workflows into DS Core, such as endo-preventive treatments, aligners, and implants, which offer appealing margins and are essential to dental practices, potentially becoming a core aspect of Dentsply Sirona as well.

Okay. Simon, as a follow-up, I appreciate that you take measured and data-driven approaches when making commercial changes. You mentioned conducting surveys to better understand areas for improvement. Can you discuss which segments of the business you are focusing on with these surveys and which ones still need commercial adjustments to drive better results? Thank you.

Yes. I believe the survey is approach differently than what your question implies. It’s not primarily focused on implants, aligners, or capital equipment. Instead, it aims to identify the challenges customers or their office staff encounter when interacting with Dentsply Sirona. These challenges may involve invoicing, billing, response times to phone inquiries, our e-commerce platform, or our return policy. Our goal is to enhance the customer experience, addressing issues that have historically affected us. We've previously discussed the complexities stemming from having multiple ERP systems—14 in total—which have made the process challenging for customers. Our e-commerce experience has also lagged compared to competitors. These are the aspects we are prioritizing. This is one of the reasons we've been in the field for the past couple of months meeting with customers. We plan to gather feedback from over 500 customers across general practice and specialist areas, as well as from other staff who interact with us. This will lead to a comprehensive understanding that will inform our ongoing efforts to improve the company.

Thank you. And we have time for one more question. The next question comes from Erin Wright with Morgan Stanley. Go ahead, your line is open.

Great. thanks for squeezing me in. On margins, did you, I guess, accelerate any of the cost management kind of initiatives there? Were there any costs that were pushed out at all? I guess how should we be thinking about that quarterly progression, or any sort of anomalies that we should be thinking about in terms of the second quarter? And then my second question, I'll just ask them both upfront, is it more bigger picture in terms of the guidance and the change in management today and the departure. I guess any sort of context there on the departure as well as who was involved in terms of formulating the guidance for dimmable you're taking full ownership of this guidance here? Thanks.

Yes, good morning Erin. Regarding expenses, nothing has been delayed to other quarters. In fact, we are seeing a slight improvement in operating expenses as the year progresses. So, everything is on track. As for our guidance, Glenn Coleman was not involved in that process as he had already left the company at that time. He made the personal decision to leave Dentsply Sirona. Herman Cueto joined us in November and December and worked with us until the end of March, contributing to the guidance alongside our excellent finance team. There’s not much more to add on that. Regarding our CFO search, as I mentioned earlier, we have several strong candidates in the final stages, and I am optimistic that we will be able to announce something soon. Overall, our expenses are under control, the guidance is set, and hopefully, we will have updates on the CFO position in the near future.

Great. Thank you so much.

Thank you. This does conclude the question-and-answer session. I would now like to turn it back to Simon for closing remarks.

Thank you. So, in closing, I would like to recognize the entire Dentsply Sirona team for their commitment to our customers and the transformational journey that we are on together. We're hitting key milestones. We continue to innovate in a very meaningful way, launching new products and technology. We're taking consistent action to advance our plans, and as you hopefully have seen, we are continuing to mitigate risk. As we navigate through an increasingly uncertain external environment, we continue to be focused on what we can control, maximizing the value that we can deliver for our customers, which we continue to believe, in turn, will unlock the true potential of our company for all stakeholders. And thank you for joining us today.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.