Conference Transcript - XRAY 2026-09-15

Jeff Johnson, Analyst — Baird

My name is Jeff Johnson. I'm one of the Senior Medical Technology Analysts at Baird. Our next presentation this morning is from Dentsply Sirona, a leading manufacturer of dental consumables and equipment across the globe. With us today, we're very happy to have Dentsply Sirona CEO Dan Scavilla, CFO John Fortson, and Chief Commercial Officer Aldo Denti. Dan, I don't know if I'll give you 30 seconds if there's anything you want to say to start off, or we can go straight into Q&A.

Daniel Scavilla, CEO

Jeff, just very quickly, first of all, thanks for having us. It's great to be here, and I'm really excited to have both John and Aldo on stage. I'm going to have them do some answers because I want the team, I want the investors to understand the strength of my team. And so, again, appreciate you letting me bring them up with me.

Jeff Johnson, Analyst — Baird

Yeah, no, happy to have all of you here, and thanks for making the effort. And I will start first with you just because I think you've passed your one-year anniversary now as CEO of Dentsupply. What's gone better than you thought in that first year at the company, and what maybe you realized could be tougher than you thought when you first came in?

Daniel Scavilla, CEO

Yeah, great question, Jeff. So a couple things. I'm really happy with the team I've recruited over the past year. My executive committee is rock solid, and I'm feeling very bullish with them. Pulling that level of talent in in the face of a turnaround was actually better than I would have anticipated. I'm very pleased with that. I like the progress we made bringing lean and agile in as a way to discipline and drive focus on the customer and make things move faster. so that's going really well for us as well. And honestly, with Aldo's speed and verticalizing the U.S. sales and investing in Clinton and getting it done, all at or above where I want to be for right now. You know, the headwinds that we didn't see that I struggle with, I think, are the European exhaling of inventory through a lot of the dealers right there. That's created a little bit of headwind for us. And, you know, even though people don't talk a lot about it, we're number one in a lot of the conflict areas in that prolonged event of, you know, not only delayed sales but increased oil prices, those things are adding pressure. We're not coming off our spend, our investment, our return to growth. It's just, you know, extra pressure on those things while the others are going well.

Jeff Johnson, Analyst — Baird

Yeah, and as you talk about, I don't have this in my Q&A, so Suzanne, sorry, I'm not going off script already, but when you talk about the quality of the management team, you've also made some pretty significant board changes that seem to really be helping, or, I guess, TBD on helping, but it has strengthened the board.

Daniel Scavilla, CEO

No, for sure. Listen, bringing someone in with the banking background that's going to help John and I with our capital allocation and approach through Jim is fantastic. Having Don join, who's come from Patterson in the past, and giving at that board level, the dealer perspective can really help us mature that. And a couple of great finds in addition with former CFOs. So it's a very strong board. It's a very engaged board. And I think they're willing to share their network, their experience. It helps us move even faster.

Jeff Johnson, Analyst — Baird

So one question I want to finish with, and then we'll maybe open it up here to John or Aldo. But when you first came in, I went back to some of the first couple transcripts, and you talked about moving with urgency. I think you had a quote of this, a moment for bold change, decisive action rooted in urgency, things like that. I haven't heard you use that word urgency as much in the last quarter or two, and maybe I'm over-reading things, but as you've dug in here, how are you thinking about the time to turn around and to really stabilize and return this business to growth?

Daniel Scavilla, CEO

No, I got it. So listen, so every answer hereafter is going to use the word urgent as we talk. I'll put it right back in there for you, right? Honestly, nothing shifted. And so, you know, we really kicked off in January. We said that's the start. We've reported out through the first six months. You know, dropping the word probably is more something on my side I wasn't realizing. But I would say that the speed in which we recruited, that we did the transformation, that we brought lean in, you know, as we're going after the cost reduction exercises, reinvestment exercises, they continue at an urgent pace. I probably would tell you I'm not signaling anything of a concern or, gosh, this is going to be deeper than I thought. Not really anything right now. I'm happy with where we are. Do I wish we could move faster? Of course, right? And I think that would be true no matter what. But I'm not concerned with what we've discovered or I've discovered in the past year. I remain committed to being able to turn this around, as we said, within the 24-month time for the return to growth plan.

Jeff Johnson, Analyst — Baird

All right, great. And although maybe, you know, you've been, what, six months at the company? Eight, nine months. Eight or nine, okay.

Aldo M. Denti

Eight or nine months.

Jeff Johnson, Analyst — Baird

Obviously, you have long history in med tech, a successful history in med tech. On the equipment and consumables side of the business, where do you see the biggest opportunity to change there? You know, I think in implants, we know some of the med ed or clin ed stuff that needs to be done. Ortho, we'll get into a little bit. But in the core kind of bread and butter of dense supply equipment and consumables, what needs to be done there to get that back to growth?

Aldo M. Denti

Yeah, and as you can imagine, being a global business, there's no one select answer. But, you know, in the United States, as you've seen, we have, you know, selectively expanded our dealer network. And the reason we've done that is because we want to be in more doors and we want to open up the aperture of our ability to sell our equipment. And so that's been very choiceful. We've done that same in Canada. And so that's because we feel like we can increase the level of penetration. The penetration of CEREC has, as you know, been somewhat stalled out for some period of time, and we see a great opportunity, especially as single-visit dentistry becomes more popularized, and that's a place where I think we can double down. So selectively, we've done that. In other markets, we have tried different business model approaches, like in Australia. We have successfully tried some new ways of operating when it comes to our capital equipment, and we're seeing the rewards of that. So that continues to be sort of what we're doing. So that's on the capital equipment side. On the consumable side, look, we are, and remain number one, we are reinvesting in the verticalization of the sales force. So part of what we've done is we had a theme of generalists, and we do not believe that's a successful way forward in the marketplace. So what we've done is verticalized by clinical specialty. In this case, a clinical specialty would be endo implants consumables. So we've brought in new leadership in the United States that has that dental background for every single one of those clinical specialty areas. We've doubled down on our training capabilities. and now what we're doing is obviously trying to ramp up how we go to market in terms of accelerating our penetration and the way we're doing that is by investing in clinical education we're imminently going to have a DS world in the United States and concurrently running DS worlds in Europe and select countries like the UK we had one in Germany, Italy, Spain so you see an effort to put our company back in clinical education terms and then the other thing we're doing is investing in R&D which we hadn't done for quite some time And so those combined efforts are what we think is going to yield the results that we expect, both on the capital equipment side and on the consumable side. The last thing I'd say on capital equipment, in particular when it comes to CEREC, is we do believe that we have a very powerful tool in DS-Core. And the combination of DS-Core plus the milling capability and the restoration capability is a very powerful way to drive efficiency in a single dentistry visit. And we believe that's something that we can lean on heavily, and we're going to do that.

Jeff Johnson, Analyst — Baird

Okay, so your expectation on the CEREC side would be, I think, penetration, I'll bet, for a decade maybe has been upper teens to low 20s? 20s. Low 20s, something like that. But I'll bet it hasn't changed a whole lot in the past decade. You think there is a path to reaccelerating that penetration rate or moving that high over time?

Aldo M. Denti

Why do I say that, right? If you've ever gone through a visit and you've had a crown put in, single-visit dentistry is something that patients just simply don't know exists. There's an opportunity to educate the patient base to demand a single-visit dental appointment where you can, if you've ever done it, right now it takes two, three weeks to get a crown. You can do all of that in a day. There's a premium you can command for that, and we believe there's an opportunity to extract value from that awareness.

Daniel Scavilla, CEO

And Jeff, I think we're not saying, hey, it's just more of the same. We're going to keep trying. I think we realize the potential here, how we create that awareness through ClinEd, through rep training, through all those things will matter. We do think we can go beyond that 20%. We think the market's to get better awareness. Usually when you talk to patients, they're aware of it. They rave about it. But to all this point, most folks don't know it exists.

Aldo M. Denti

I think the other thing, just to finish on that point, is so we had obviously a limited penetration up until now. What's going to change? Why is there going to be a dramatic shift? Well, there's the digital workflow, makes a much more efficient, much more streamlined process. And so the addition of DS Core on top of the mill is a capability that we're building up. And we've barely finished that workflow. It's really just now getting to a point where it's stabilized and it's got the right componentry to it to make it seamless. So we feel that's an opportunity.

Jeff Johnson, Analyst — Baird

All right, fair enough. How important is innovation on the consumable side of the business? It is something that seems to be lacking across the industry probably over the last five to seven years or something Starting to see a little bit of that come back, but how important is innovation?

Daniel Scavilla, CEO

I think innovation that can create an unmet need solve right so going at that is always a good thing I don't think there's a point where you stop investing and driving it now Revolutionary versus evolutionary Innovation is something we have to look at some of these mature our markets are mature enough that we can look for those things, but you'll see what we'll do over time is probably even in some of those more commoditized areas, we're looking for some disruptors. We'll probably see some increases next year in R&D spend that will help us go look at ways to go find that.

Jeff Johnson, Analyst — Baird

Okay, and one question I just thought of going back to the CEREC commentary is just as you think about that penetration moving up over time, would it still be on a milling basis as opposed to a 3D printing basis?

Daniel Scavilla, CEO

Both. I think it's both. So I think you have the ability from mill to go beyond the 20%. I think there's also a rise in 3D that could be as high as 30%, call it that way. So one would think within the next three to five years, at least half of the dental practices, I believe, could or should have milling or printing or both.

Jeff Johnson, Analyst — Baird

For full rest It depends on the development.

Daniel Scavilla, CEO

There's a lot that has to occur still in 3D printing. You won't get, at least currently, 3D printing to be as strong as milling. There's a lot of reasons why you can't. The aesthetics, the matching, the things like that, there's still a long way to go. Will they get there over five years? Possibly. I'm not of the mindset that 3D printing will obsolete milling. I've worked in manufacturing, I've done both. There's always a need to do both.

Jeff Johnson, Analyst — Baird

Fair enough. on the implant side of the business. Is it all about clinical education and doc training? It sounds like you're fairly comfortable or comfortable with the implants that you have themselves. So what's it take to get that business if the market's been growing, let's say, close to mid-single digits, plus or minus, to get back there?

Aldo M. Denti

Yeah, listen, I think we have to dissect that a little bit further, right? Because implants, there's a couple of things we should discuss. The first one is premium and value are not made the same. You've probably seen the numbers. The value segment is growing. It's driving the growth as are DSOs. And so for us to be successful, number one, we've got to invest in our value sales force, which we have done to limited effect in the sense we haven't really invested all that much in the past years. Now we are taking a new lens and we're wanting to invest. That goes both for Europe and for the United States. To do that, you have to have a qualified sales force. So first step is we've brought down the rate of turnover in our premium sales force, and we have recertified the entire U.S. sales force to a new standard, 100% certification. Step two, expand into value. Step three, build our DSO channel. We have very limited DSO selling capabilities. We've built out that capability. So the combination of DSO plus supercharging our value segment plus clinical education plus sales training is the recipe to succeed. Now, as you can imagine, conversion cycles in implants take a bit longer, so that's going to take some time to manifest, but the fundamentals are starting to come together there.

Jeff Johnson, Analyst — Baird

Okay, and on the Challenger side, that's mainly your MIS business, and you have everything you need there from a product standpoint?

Aldo M. Denti

The Lynx product line is extraordinarily competitive. Listen, whether you look at Astra Premium, whether you look at MIS, then you add the custom abutment capabilities of Atlantis, and you add our Regent portfolio. we have everything we need to succeed and what i would offer on top of that is the next step is then to make the digital workflow seamless so to add implants on core just like we did serac on core the next step is to make that process seamless so that the planning capability of ingesting the image going into the planning software and then doing the execution can all be done with a digital workflow that is much more efficient than it is today it doesn't matter what competitor you look at, people have to jump in and out of four, five, six softwares to get that done.

Daniel Scavilla, CEO

And we'll continue to put innovation into the products themselves as well. We see some differentiation capabilities. We're exploring that now to further kind of push that along.

Jeff Johnson, Analyst — Baird

On the building out the value or the challenger implant sales force, how much bigger does your sales force need to get from here on the implant side?

Aldo M. Denti

We don't typically disclose size of sales force because that's uh you know what i would tell you is it's gonna it's we are going to make a substantial investment to build out that channel um because we also know that to get to the penetration levels that we expect we're going to need more people okay and so um that effort is underway and those would mainly be john 2027 investments or dan well they're underway right now but they're going to continue through 2027 for sure yeah okay yeah and jeff what i would think of is waves right we're not going to go out and suddenly have this massive type of thing right think about concentric circles we'll continue to hire focus and go and I would think that even beyond 27 we'll be looking to recruit and expand in those areas I don't see it as a drag on the piano I think there's ways to fund that and I think that's kind of the path we're headed but that said we will hire as fast as we can for the sake of speeding us up yeah here's what I can tell you because I think you know I can provide some clarity when you when it comes to value in plants you have to make sure that you know your productivity rep productivity is there so to do that we can concentrate on high-density geographies and we can start with that we don't need to go everywhere we can go to the places where we have the most volume that we can achieve and we can work our way backwards from that so that's kind of the lens we're looking at and geographically would that start US Europe both both in you in Europe we're a little further down the track in US we have work to do I also think it's

John C. Fortson, CFO

important Jeff you know this is a game of resource reallocation and prioritization right I mean Dan has given the company and Aldo very clear marching orders that the focus is on the customer right and that might be where you know the company has struggled because it's such a big broad diffuse global organization right and we are going to take resources from other cost centers to take that money to invest in this, right? So it's not additive in terms of overall numbers, and I think that's important what Dan was trying to say, but you're going to see a shift in where we're allocating those resources.

Jeff Johnson, Analyst — Baird

Okay. Where do some of those resources come out of? Anything customer-facing at all?

John C. Fortson, CFO

It will not come out of customer-facing. There are some customer service support, shared services, back office areas that we will streamline, make those processes more efficient so that we can take that money and divert it to Aldo Salesforce. But it will always be done with the lens of how do we improve and enhance the customer experience because it's more than just making the sale, right? You have to service that customer. You have to make sure the equipment gets there on time. You have to make sure that they have payment methods that make sense. So all those processes, as we make those more efficient, that frees up money and time and resources for- I think, look, we've talked about it before.

Aldo M. Denti

I mean diffusion is the enemy of success. When you're so broadly diffused across geographies globally across so many different product lines it's going to be very difficult to be successful everywhere and so part of what we're doing is looking at where do we have the right to win, where do we over invest even if we have to and extract maximum value shock like every other medtech company our sales are coming from limited amount of geographies and limited amount of product lines so okay that's the lens we're going to take a look at.

Daniel Scavilla, CEO

Yeah one of the things that all of us have done in the past is centralize and and leverage out support departments then supply serona has been a collection of acquisitions never integrated so there's a lot for us to go out to go get the funds to put into the customer facing that's really what we're executing right now yeah all right that makes a ton of sense all right let's get through the orthodontics business and touch on well spec'd and then I want to wrap it all up with kind of how we put this together over the next year or two and over the next five years, something like that.

Jeff Johnson, Analyst — Baird

Ortho, a lot can be said about your ortho business over the years, from tsunamis to maybe poorly timed DTC acquisitions at the peak of valuation cycles back a few years ago, things like that. Most of that has been cleaned up at this point. You've got a SureSmile business that has a very good reputation and moving teeth accurately and consistently, but it's only about 5% of the clear aligner global market, 2%, 3% of the global ortho market in general. You don't really have much of a sales force. You don't have any more presence in brackets and wires, which always helps with cross-selling and relationships. So what do you do with that ortho business, and how does it, one, make sense as part of Dentsupply, and two, is it a long-term growth area?

Daniel Scavilla, CEO

Yeah, so it's a great question. So a couple of things, right? You have the robotically bent wires, which are a major driver and a very key to actually speeding up the whole procedure and actually improving the outcome. So we're still in the robotically bent, which is the main thing. The SureSmile is a great product. I am literally, this is my commercial. I'm wearing it now as we speak. I'm using it. It's great. It's easy to use. So we recognize that to do this right, we need to modernize software, increase Salesforce, go into the clinical ed spending. so the debate we're having is could we do that should we do that with everything else or not and and we haven't made that decision fully it is a great asset it's one that we could develop and gain more than 5% share as we wait through all of our choices we're making to get into the second phase of return to growth we're trying to decide is that one we invest in or not don't have that answer for you yet but we recognize that there's value in it whether it's in our hands or for the shareholders maybe somewhere else okay yeah that makes sense and then on the let's see if i have anything else would it ever make sense then with that robotic business to scale up in the brackets and wire side and core ortho and are there external ways to do that yeah there are and like i said you know our thing right now was let's go stabilize the u.s let's go put the building blocks in place right how do you actually get this back into where you're not shrinking That's really what this past Aldo's eight months, my year, have been. With that, the next chapter is, okay, what do we do with the assets to go deeper to create more focus? And so what I'm signaling isn't something mystic. It's just we have a strategic plan we're developing. We'll have that done probably by the end of the year. We'll come out and say this is where we're going to go take this company as a next step. It's just in play right now. But you could go deeper in the robotic event wires. You can invest in the ortho itself. you know there's a lot there and I think that's really the great thing is this can be an amazing asset we just have to decide which direction do we want to go in.

Aldo M. Denti

Okay yeah look and I think one of the things so in the meantime what have we done because it's not we just stood still we have verticalized the business we've brought a new leader in that has experience in aligners so we've done that we have retrained our sales force that we have but we've also pivoted away from a focus on GPs to specialists why because the hybrid treatment that Dan references is best suited in the hands of a specialist that can do a hybrid brace and then an aligner coupled with a software that is, as you said, very, very good. Does it need some work? Yeah, it needs some work. So right now, as we are deciding where to put our focus, we've said, okay, let's focus on the specialist. Let's also bring in some clinical implementation specialists that can sit with that specialist and walk through the procedure, and that's how we're choosing to tackle the market right now. So it's selective, but it's also taking advantage of where we think our product and our footprint can maximize the return.

Jeff Johnson, Analyst — Baird

Do you have many white-label, DSO-focused, GP, SureSmile contracts still active? And as you kind of shift that focus to specialty, do we need to think over the next four to six to eight quarters of working out of those relationships?

Aldo M. Denti

I mean, with the numbers you quoted, not really a large penetration. Remember, our penetration in DSOs, we didn't really have a very effective organization to chase DSOs, So we don't have a very large footprint that we have to retro out of. So the answer is that's not really a concern of ours. And the numbers are relatively small.

Daniel Scavilla, CEO

The other thing, Jeff, I'd add, too, is we're not signaling that we're walking away from the generalist. We're actually expanding into the specialist.

Aldo M. Denti

That makes more sense.

Jeff Johnson, Analyst — Baird

I got that. On WellSpec, just real quickly, you know, it's only about 10% of your global revenue, but it's one of your more consistent, better-growing parts of your business. Lofric and Novena, is it? what's the other product?

Daniel Scavilla, CEO

Surety.

Jeff Johnson, Analyst — Baird

Surety, yeah. You know, are well thought of brands out there for sure. You know, you've tried to run a process a couple times, have never pulled the trigger on selling that part of the business. Is that something that becomes a bigger than 10% part of the business over time through organic or inorganic? Or do you revisit selling it someday? Just where's the long-term well-spec fit?

Daniel Scavilla, CEO

Yeah, it's a great question. So, you know, I stopped the sale I felt like the offers were below the intrinsic value and having seen what was invested not only in manufacturing and cost out capabilities but product launches it was clear that there was a longer runway for well spec so holding that and signaling growth to that is really what I wanted to do now you know to your point it's a cash flow generator so not only can we invest very well into them but we can use that to accelerate dental for me it can become a much bigger part than 10% over the next five years. It has in its path great growth capabilities. I think you'll see that as we talk more third, fourth quarter next year, and they penetrate the U.S. market and go. You know, should an incredible offer come up that is the best to do for the company and the shareholders, of course, we'll consider that. But short of that, I would rather really build this up, make it part of a diverse company, not a dental-focused company, and it's a pathway for us to do that.

Jeff Johnson, Analyst — Baird

And just as I think about the second half model, and maybe we'll talk very high level about 2027, but on the second half of this year, the goal has been to get back to U.S. organic growth, slight growth in the fourth quarter. Is that still an achievable goal, number one? And number two, I think third quarter, we were still thinking coming out of the second quarter, a pretty low EPS figure on a lot of these investments we're talking about. but then a decent sized jump to get to the 140 to 150 side for the year. So just walk us through where we get that sequential jump from 3Q to 4Q on the EPS side as well.

John C. Fortson, CFO

Yeah, so just to answer the question sequentially, right, move through each of those, you're correct. I mean, there is going to be a sequential step up between Q3 to Q4, right? Nothing's changed sitting here today from what we said in the last earnings call. We've still got four more months to run. right so and we're working hard i would tell you to your first comment there's definitely a sense of urgency in the company you may not talk about it but there's a sense of urgency in the company right now um you know one of the things we've studied this when you look at our sort of historical numbers over the last couple years in the fourth quarter it's always a pretty strong quarter now gets distorted by noise right there's been a number of whether it's erp or bite or other things that have kind of made adjustments in that, but it's doable. We need to see some of the green shoots begin to yield fruit for that to happen, but that's what we're shooting for right now. I will tell you though, and I think Dan's been very upfront and I share his philosophy on this, we're not going to try to hit individual. We're going to do what's right for Densply over the long haul and if things have to move around from one quarter to the next we're going to do the right thing to get this company on the right trajectory so if it ends up being a q1 thing it so be it but we're right now sitting here tracking we're we're not changing our position yeah we feel good about it so another way to answer that is all of the dealers that aldo and team put in place in the first, second quarter, get trained, get up to speed, build a pipeline, come into the fourth quarter, which is a heavy capital.

Daniel Scavilla, CEO

We think that's a lift that wasn't there historically. You know, the clinical spend that we've done and are investing heavier in the third quarter will ease off a little bit holiday seasons and things like that. So you see that natural lift. You've got out a trained sales force that he mentioned and the team stabilizing from verticalization. All of these tend to come into that. It's not really a Hail Mary pass like we're going it's not even that far off historical norms if you look at what that EPS needs to be it's really about executing and as John said we're going to invest in the long-term health and you know we think we're in good shape now but you know should we find that there's additional pressures I'd probably miss the bottom line a little bit and continue to spend for long-term health than to do anything foolish and cut it I think the other thing to take into consideration is we're imminently going to go to DS world in the United States.

Aldo M. Denti

We have concurrent meetings running in Europe, in the UK, in Spain, and Italy. All of them are happening right now this month, so all of that obviously has impact. And as Dan said, the dealers are coming online. And so it was all mapped to align to the third and fourth quarter.

Jeff Johnson, Analyst — Baird

Yep. All right. That makes sense. So let's say you end up in that 140 to 150 range for the year with the investments that are continuing as we talked about, can the next 12 or 18 months be EPS growth and global revenue growth, or should we be thinking kind of more flattish for a time before we can start to see return to growth?

Daniel Scavilla, CEO

Yeah, I'll answer a couple of ways, because we haven't gone through yet to give you rough 27 guidance, but I did announce with the return to growth that it was a 24-month plan, right, and so I don't think we exit this year and declare victory.

Jeff Johnson, Analyst — Baird

I think we declare we're on track slightly absolutely off you know I would think right now looking at flattish into the year wouldn't be the craziest thought to go into more data when we get into the first quarter know where we are yeah and think about flattish being kind of an organic revenue and a EPS kind of not crazy range to think about for 20 27 you got it by that yeah you got it kind of fits I think with where we're at our model I think the street has a little bit of EPS growth next year but it's hard to tell who's building off that tariff refund or not. So maybe that needs to be cleaned up a little bit, I think, in sell-side models. Longer term, Dan, in the last minute and a half here, I'll just leave the question to you. Where do you see dent supply? I know you haven't put LRP targets out there. This wouldn't be an LRP.

Daniel Scavilla, CEO

But if market, I don't know, 3% to 4%, something like that for the global dental markets over time, is that something you aspire to be? is that something you aspire to be above uh just how to think about the long-term no thanks jiff so we're actually doing lrp and strap plan currently we'll come out you know early next year and kind of share that in a thing but my vision always for this company has been to grow at or slightly above market on the top line be a strong cash flow generator and grow the bottom line greater than the top whether that be through leverage and cost reductions and share repurchases That's really key where I see deleverage this thing for the breathability and flexibility. It's one of John's biggest things. And so, you know, over the next several years, I want to be in a very different spot from cash, from leverage, from growth than where we are, you know, as we entered in 2026.

Jeff Johnson, Analyst — Baird

Yep, perfect. Well, I think your timing is perfect. Our time is up. So please join me in thanking Dent Supply for a great overview here at the company.

Daniel Scavilla, CEO

Thank you.

Jeff Johnson, Analyst — Baird

And our next presentation is set to begin. I don't have in my notes here, so we'll just leave it at that.