DENTSPLY SIRONA Inc. (XRAY) Earnings Call Transcript

Good day. Thank you for standing by. Welcome to the Dentsply Sirona's Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Wade Moody, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the Dentsply Sirona's Second Quarter 2026 Earnings Call. Joining me for today's call are Dan Scavilla, President and Chief Executive Officer; and John Fortson, Executive Vice President and Chief Financial Officer. 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 forward-looking 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 updated information in subsequent Form 10-Q or other SEC filings list 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' financial performance, enable the comparison of financial results between periods where certain items may vary independently of business performance, and enhance transparency regarding key metrics utilized by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons provided are to 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 Dan.

Thanks, Wade, and good afternoon, everyone. Before we discuss the quarter, I'd like to welcome John Fortson to his first earnings call as Executive Vice President and Chief Financial Officer of Dentsply Sirona. John joined us on July 20, and we're excited to have him on board. He is a proven finance and business leader who has worked closely with CEOs and Boards through periods of transformation, strengthening operations, allocating capital with discipline and creating long-term shareholder value. Having served both as a public company CFO and CEO, his experience is well aligned both with where Dentsply Sirona is today and where we're headed in the future. I'm glad he's on our team. I'd also like to thank Mike Pomeroy for his leadership as Interim CFO. I sincerely appreciate his contributions. With that, I'll turn the call over to John to review our second quarter 2026 financial results.

Thanks, Dan, and good afternoon, everyone. First off, I'd like to say it's a privilege to join Dentsply Sirona. Having followed the company for many years, I am familiar with the strength of its portfolio and energized by the opportunity to help restore the business to its full potential. What ultimately drew me here was the clear commitment from the Board and the leadership team to execute the disciplined turnaround. There is a strong focus on operational excellence and long-term value creation. Although I've only been with the company for a few weeks, I'm hitting the ground running and ready to execute the Return-to-Growth Action Plan with the team. Let's move to Q2 results on Slide 4. Our second quarter 2026 revenue was $898 million, representing a decrease of 4.1% as reported or 6.3% on a constant currency basis. Adjusting for the impact from Byte and the planned dealer inventory reduction of approximately $8 million in the quarter, revenue declined 3.6% on a constant currency basis. Adjusted EBITDA margins were approximately flat year-over-year, with the benefit from $44 million in tariff refunds, offset by a decline in gross profit, driven by lower volumes, sales mix and incremental tariff impacts. OpEx was up $12 million year-over-year, including an FX headwind of approximately $8 million. A decrease in G&A was offset by investments made into sales, marketing and R&D, as was planned in support of the Return-to-Growth Action Plan. Adjusted EPS in the second quarter was flat versus last year at $0.52. The tariff refunds translated into a positive $0.17 per share impact. Operating cash flow in the quarter was $99 million compared to $48 million in the prior year quarter. The year-over-year increase is primarily attributable to the receipt of the tariff refunds in addition to improvements in working capital with better management of accounts payable and inventory. We continue to remain diligent on improving our working capital. This will be a key focus area of mine going forward. In the second quarter, we opportunistically repurchased 1.3 million shares at an average price below $10 per share. This represents the first time Dentsply Sirona has repurchased shares since the third quarter of 2024. We finished the quarter with cash and cash equivalents of $239 million, and our Q2 net debt-to-EBITDA ratio was 3.2x, consistent with where we ended Q1 of this year. We continue to prioritize debt reduction. Now let us turn to Q2 segment performance on Slide 5. Starting with the CTS segment, sales were $239 million, an as-reported decline of 1.5%. Equipment & Instruments revenue was $137 million, flat year-over-year with declines in Treatment Centers. This was partially offset by growth in imaging equipment, particularly in EMEA, where we saw increased demand for our Orthophos line of imaging products. CAD/CAM revenue was $102 million, down mid-single digits, driven by lower volumes in the Americas and unfavorable price/mix in EMEA, partially offset by double-digit growth in APAC. EMEA saw a slight softening of demand for select areas of capital equipment, as providers deferred some investment decisions due to uncertainties from the Middle East conflict. Turning to EDS, which includes endo, resto and preventative products. Sales of $376 million declined 2.7% as reported, primarily driven by lower volumes in the Americas and EMEA. As we've shared in Q1, the impact of inventory changes for our EDS products held by our distributor partners in the EMEA region had a negative impact on results. We saw a sequential improvement in Q2 as we obtained greater visibility into the dynamics within various markets and distributors across the region. Overall, sell-out in the region was in the low single digits, consistent with expectations for dental consumables. The sell-in is lower year-over-year, as certain distributors reduced their inventory levels. We do not believe this reduction in wholesale inventory is a demand-driven trend. Moving to OIS. Revenue of $197 million declined 13.2% as reported. When adjusting for the year-over-year impact from Byte, OIS declined 5.7% as reported, consistent with last quarter. IPS revenue of $157 million declined mid-single digits, driven by lower volumes of premium implants in the Americas and APAC. EMEA Implants grew mid-single digits as reported, led by improved performance for MIS, our value implant brand. For Ortho, SureSmile revenue of $40 million declined double digits, primarily attributable to the Americas region. Wrapping up with Wellspect Healthcare, revenue of $86 million increased 7.1% as reported, driven by the continued strength of new product sales and execution by the business, partially offset by lower inventory levels in the U.S. market. Now let's move to Slide 6 to discuss our outlook for 2026. We are maintaining our 2026 outlook for net sales of $3.5 billion to $3.6 billion, and adjusted EPS in the range of $1.40 to $1.50. This EPS range excludes the benefit from tariff refunds and impact of incremental tariffs. Our decision to maintain our outlook is based on expectations as of today, including our current expectation regarding tariffs and trade policies. Looking to the third quarter of 2026, we expect revenue to decline sequentially due to normal seasonality. As we continue to execute our Return-to-Growth priorities, we also expect Q3 earnings to be below Q2 2026 levels, excluding the $0.17 benefit from tariff refunds. We remain committed to investing in our sales force, clinical education programs and R&D, with the benefit of these investments expected to become increasingly visible beginning in Q4. With that, I will turn the call back to Dan.

Thanks, John. As we wrap up the second quarter since beginning our 24-month Return-to-Growth Action Plan, our priorities haven't changed. We're focused on putting customers at the center of every decision, improving execution, investing where we see the greatest opportunity for long-term growth and strengthening the financial foundation of the company. We're making progress, but this is still a turnaround. Some parts of the business are improving faster than others, and there's still a lot of work ahead. As John mentioned, we expect more of the improvement weighted towards the fourth quarter, given investment timing and macroeconomic conditions. What gives me confidence is that we're beginning to see evidence that the work we're doing is gaining traction. Everything starts with the customer. Over the last 6 months, we've been rebuilding how we engage with our customers. We're investing in clinical education, strengthening our commercial organization, expanding customer access through our dealer network and making it easier to do business with Dentsply Sirona. In the second quarter, clinical education was at the forefront. We brought together more than 1,000 clinicians at our Global Implant Summit, hosted endo KOLs at our 2026 Endodontic Forum, and convened leading experts across restorative and multidisciplinary dentistry to help shape the next generation of clinical solutions. These opportunities enable us to learn directly from clinicians, strengthen relationships and ensure our innovation pipeline reflects what customers need most. At the same time, we're investing in our own commercial capabilities. Every U.S. sales implant -- excuse me, every U.S. implant sales rep recently completed the most comprehensive implant certification program we've ever delivered. Our most experienced team members told us they've learned more in those 4 days than they had in years. This initiative is not only encouraging, but also just the start of an ongoing investment in education. We're also seeing momentum internationally. In APAC, we're expanding education programs, advancing implant sales training and seeing continued adoption of our Connected Technology Solutions, including double-digit growth in milling systems. On the digital side, DS Core continues to gain traction. During the quarter, 4 European DSO groups began to implement the platform, reinforcing the value of an integrated digital workflow that connects diagnosis, treatment planning and clinical execution. We've also continued to strengthen our U.S. distribution footprint by growing our dealer network. During the quarter, we announced the expansion of our partnership with Atlanta Dental and Nashville Dental, and we advanced our long-standing relationship with Medline Sinclair in Canada. These partnerships are important building blocks for sustainable commercial growth, extending our reach and giving more customers access to our Connected Technology portfolio. Wellspect continues to perform exceptionally well. The business delivered another strong quarter, supported by new product launches, geographic expansion and continued adoption of our newest products. That's a good example of what consistent execution looks like, and we intend to apply those same principles across the areas of the company. We also established a small group of strategic Advisory Board to provide guidance on Wellspect long-term priorities, innovation and growth opportunities. Execution also means improving how we operate internally. We're simplifying the organization, enforcing accountability, standardizing processes, embedding lean operating principles and AI to eliminate routine work and accelerate decision-making so our teams can spend more time serving customers and bring innovation to market faster. Financial discipline remains equally important. We're improving cash generation, strengthening the balance sheet and continuing to deploy capital in a disciplined way. As John previously mentioned, we repurchased 1.3 million shares for approximately $12 million using a portion of the tariff refund proceeds, consistent with the capital allocation framework we introduced earlier this year. We continue balancing investments in innovation, commercial capabilities and shareholder returns to support long-term value creation. Six months into the Return-to-Growth Action Plan, I believe we're going deeper, moving faster, taking bolder steps to improve our business. We're recalibrating customer relationships. We're strengthening our commercial organization. We're expanding access to our products. We're simplifying the company, and we're creating a stronger financial foundation. The path won't be linear, but we're seeing encouraging signs that our actions are beginning to translate into improved execution and stronger customer engagement. Thank you to our employees around the world for their continued hard work and dedication to our customers. I continue to believe the potential for Dentsply Sirona has never been greater. And we have at our fingertips, everything we need to achieve our plan. With that, let me turn the call over to the operator so we can start the Q&A session. Thank you.

[Operator Instructions] Your first question comes from the line of Elizabeth Anderson with Evercore ISI.

I guess my first question is, John, maybe you could talk a little bit about why XRAY was sort of the right next step on your career? And also, do you guys now think you have the full team in place to go forward with what you need to do to help get the company on the right footing? And can you also, maybe as my follow-up, just talk through like how you kind of see the drivers that increased the EPS from 3Q to 4Q like you were just laying out, John.

Sure. No, I'll start. Dan can talk a little bit about the team. But I've followed this company for a long time. I've been in the Carolinas, really, for 15-plus years and have followed the story. And I really feel like the Board and the current leadership team under Dan are ready to do what needs to be done to take this company to the next level, right? I feel, having studied for a number of months, the Return-to-Growth Action Plan and in conversations with Dan and the other leaders, I feel like they have the right plan at the right time. And I'm pretty excited about being here. I look at the prioritizations, they're pretty straightforward. We Return-to-Growth, we maximize profitability and we maximize cash generation. And I think we have the opportunity to do all 3.

Thanks. And I'll answer the rest of that, Elizabeth. We have a great executive committee, my direct reports. If you look through it, A vast amount of that was rebuilt and those that remained were a really strong base to go from. So I feel very bullish about that team. The rate of engagement we have around the world when it comes to our directors up as well, continues to impress me. And so the answer to your question, yes, we have who we need to make the changes that we need to make. I feel very strong about that. As far as the progression and heaviness, perhaps in the fourth quarter, given the turnaround and very similar to what we may have spoken to in the past, a lot of that really banks on the fact of when you're reorganizing the company, and you have some of the timing of when those structural changes take place, you'll see it bear more in the fourth quarter than you would previous as we go do that. In addition, if you remember, we've added a lot of the dealers in the first quarter or second. And I always mention it's about 9 months before you really produce there to sell capital. And so you're bringing them on board, training them, getting their reps out there, building a pipeline and then closing. And so while we are positive and seeing positive results of who we brought on, I think that will be heavier in the fourth quarter than perhaps what we've seen in the first or second.

Your next question comes from the line of Allen Lutz with Bank of America.

Really, a follow-up on my question from last quarter around the Return-to-Growth Action Plan here. Dan, you talked about a lot of the same things that you talked about last quarter, some new distribution partners, which you executed against in the quarter. You gave the example on investing in clinical education and R&D continues to trend up nicely. Would love to get a sense in terms of where you're most excited. You sort of answered it a little bit with the last question around maybe some of the contributions from dealers coming in, in the fourth quarter. But would love to get a sense of the parts of the return to action plan as you go through it, now you're 6 months in. Would love to get a sense where you're most excited and what you think the first part of that is to hit the P&L?

Thanks, Allen. I appreciate that question. Honestly, what I'm most excited about is the level of engagement we have with our dentists and seeing that accelerate at different levels of the company. I want to say it's a reengagement and the feedback that I've been getting from different folks that -- how happy they are with the dentists themselves coming back on the clinical education programs or the interaction with executives, or even some of the events that we have held or attended, they see our recommitment into that. And I've been getting a lot of good feedback from them, which is encouraging to me because as we say and have said, it's all about the customer first. And if we're going to turn this around, it's about supporting the customer first and foremost and then earning the right to grow and take share from there. And so that excites me. Honestly, with John joining the team and really filling out an already strong executive council that I have, that's second thing that's exciting to me. And you're right, I love the partnership expansion in the U.S. with the dealers, and I think that's still yet to prove out more in the second half of the year, but all 3 of those rank up for me.

Your next question comes from the line of Michael Cherny with Leerink Partners.

This is Dylan Finley on for Mike. Just wanted to start briefly on the tariff refund. Just a clarification point. Was that refund assumption embedded in the initial guide? And does the maintenance of the guide account for the contribution of that refund? And then secondly here, if you could just broadly comment on your quarterly run rate into COGS. What you're seeing today with the 122s and now the 301s, where do you see your quarterly spend on tariffs from here?

So Dylan, I'll answer that. So the first thing is we did not build a refund into our initial guidance. That was something that we decided not to do because it was uncertain when it would occur or what it would be. And so that's in addition. As we maintain our base guidance, as John called out, we're saying we're not changing that. And certainly, in addition, we would layer in some semblance of the tariff that we were calling out earlier in that section. So it's something totally unrelated to the operations of the business and done. We do not disclose the rate of tariffs per quarter. So that would be something I'll refrain from answering.

Very helpful. And then as a brief follow-up here, you guys showed some nice gross margin improvement, if I'm just looking and backing out the tariffs. But on SG&A, in the past, you talked about a reduction in targeted annual savings. Any updated thoughts on the magnitude of that and timing of when we should see some improvement in SG&A?

Yes. So it's a little bit, Dylan, of a couple of things. It's sort of a put and take here. We're reorganizing a lot of our company, whether it be through headcount or indirect spending. But I'm also redeploying that into increasing the field, increasing clinical education, increasing rep education and accelerating innovation. And so it's not an anticipated drop-through to the bottom line, so much as a repositioning for long-term growth that's occurring.

Cathy, do we have Vik on the line?

Pardon me. Yes. Vik Chopra with BMO.

It's Anton on for Vik. Maybe first, I'll start on the U.S. commercial expansion. Dan, you've repeatedly emphasized that the U.S. business recovery is your top priority and have been taking clear steps in building out the U.S. commercial team with senior leadership and competitive hires. I'd be curious to hear where we stand in the U.S. commercial team build-out. Do you have all the people you need? Or are there more seats to fill? And does the guide contemplate accelerating productivity from these hires throughout the year? Or is that more of a 2027 phenomenon?

Yes. Thanks, Anton. First, I would say, I'll probably never have as many people as I need because there's no answer to that. I want to have as many reps in the field representing us as we can. That said, what we did do in the first quarter was make a significant verticalization of our commercial organization under the team and they did a great job. And those folks that lead those verticals are dental experts with a lot of competitive experience as you referred to, and it's there. We are, again, retraining the reps that we have, recertifying them. And then to your point, expanding them both from new hires and competitive hires. I really do think those efficiencies, while they will continue sequentially through the quarters as you get through Q2 to Q3 to Q4, I think are going to be more impactful into next year because a lot of that training, a lot of that clinical education and then just getting everybody into those moves that they need to do into the field, I think, will be more of a next year impact. But I'm happy with the progress being made with that team.

That's really great to hear. And maybe one more follow-up on China. Last night, one of your peers shared some updated perspectives on the China environment and VBP timing. I'd be curious to get your perspectives here as well. Like what's your latest thinking on China VBP 2.0 in 2026? And how do we think about the impact for Dentsply?

Yes. Again, great question. It moves, as you know, it's been delayed. It's been cast out there. So I'm probably going to line up with the timing. I know that it was pushed off several months from China that way. We don't have a significant impact baked into that for this year nor do I expect one. China is an area of significant long-term growth for us right now, and it's one that we're keeping our eye on of how best to approach. But at this point, I would tell you that it's smaller, and that we have our eyes on how to make that bigger over time. And the VBP is simply just one step along the way for us to really get into that market.

Your next question comes from the line of Jon Block with Stifel.

Joe Federico on for Jon. Maybe just to zoom in on Implants a little bit. Is there any further detail you can provide on the performance in the quarter? I think you said EMEA was mid-single digits led by value, but maybe any other color between value and premium? How did the U.S. perform? And then just how do you view the market growth there in the quarter and then in 3Q to date?

Yes. We tend not to break it down by products or things like that in a lot of detail. What I would tell you is that our value products in EMEA had a very strong quarter. There's a lot of cadence there that we're doing. In the U.S., simply part of the turnaround, we lagged behind that. We have incredible products. As I just said, we've recertified our team to give them more education to go out and worry about workflow and dentist needs as opposed to just selling a single product. And so it's still a continued investment in our turnaround plan, focused primarily on the U.S., still investing, obviously, in EMEA and Asia Pac. But I would say that when you look at the competitors, we're lagging behind, and we need to change that. We've got the right products. We have the right approach. We have to execute and get up to market and beyond.

Your next question comes from the line of Michael Sarcone with Jefferies.

Two for me. I guess, can you just give us an update on -- or elaborate more on capital equipment demand? I think you mentioned some uncertainties in Europe related to Mid East tensions, but maybe give us kind of an around-the-world view. And then just second, I'll throw it out here now is, Dan, you talked about the sales force ramping. How are you thinking about growth in Implants as we look to 2027?

Yes. So what we're saying with us in the capital itself, and as you know, it's seasonal. In EMEA, because we are one of the leaders in dental, the rural regions are a little bit bigger for us than perhaps our competitors, and we are seeing delays that have occurred there. We're not going to call it out. We're not going to call it down at this point. Our eyes are on it. It's an unknown ability when that resolves or when they'll pick up. But that really was just it, we're just seeing some delays in there because of the uncertainty of that situation. Do we think that, that can clear through in Q3 or Q4? We hope so for the sake of the people there, but eyes on it for that one. That's really kind of the thing that's going there. On the sales force itself and the productivity and the lift that would occur for Implants into 2027, we're going to refrain for now. We got to go focus on this year and the turnaround to finish that, and we'll be giving guidance more as we get into the early part of next year along those lines.

Your next question comes from the line of Lily Lozada with JPMorgan.

Following up on the prior question about Implants. When I look at the results across the segments, the one area that was really softer this quarter was OIS. So I'm hoping you can unpack that a little bit. To what extent was that a function of headwinds from a weaker consumer environment, given the price point and more elective nature of the procedures? Or was there something else at play?

Yes. Thanks, Lily. I appreciate that. What I think is a couple of things with OIS in particular. To us, remember, you have that Byte impact that's occurring, and John called out the impact of that. We still carry that through of a significant part. That's really it. I think what we have seen, particularly on SureSmile is more of a U.S. impact. And I think it's more about us, again, looking at the turnaround as we enter back to orthodontists and we hire that sales force, we modernize our software and go. So the Byte removal is still something carrying. I think that SureSmile U.S. is that next one that's out there. The rest of it, I was happy with. I think that's really in OIS, the 2 main impacts.

Great. That's helpful. And then I just want to make sure I'm understanding some of the comments you all made on macro. It sounded like you did see some pockets of lower demand due to the macro environment. I think the messaging prior was that the ebbs and flows in the market don't really impact Dentsply so much just given all of the operational improvement that you're making. So I just want to make sure I get the message clear on that. What's the latest that you're hearing on macro? And how much does that impact you in 2026?

It's a great question, Lily. Let me expand on that, too, just for clarity. So thanks for pulling it out. In the past, and I'll stick to this, I've said that we shouldn't count on a market up or down to drive our growth. We have many things we have to do ourselves. And whether the market is up or down, we have to improve and grow. So that was the latter part of your question. I'll stick with that. When I was calling out the macroeconomics, it really is about keeping our eye in the Middle East and the tensions in the war that's out there, not just because it's somewhat disruptive to us from a procedure or capital, it's also the increased freight. We have, to date, seen impacts, and we have absorbed those impacts. I anticipate that to settle down and go back to a normal rate. And so I have not backed off the Return-to-Growth investments in sales force, clin ed, or innovation. And my point is, if those pressures remain high, there's a point in the future that I may choose not to absorb them and adjust accordingly on the bottom line. I don't see it yet. I'm just dropping it as a hint. That's really what I meant by that statement.

Your next question comes from the line of Jeff Johnson with R.W. Baird.

Dan, I wanted to start in EDS, if I could. You pointed to volume declines, both EMEA and in the Americas. Any way you can qualitatively help us understand which of those might have been better or worse, I guess, how to play one off the other, number one. And distributor changes in Europe, maybe the answer is that was the worst side of my question. But just any clarity there, number one. And number two, I think in the past, you've been pretty clear you don't think you have room at this point to increase price on the EDS side. We've kind of picked up, maybe in our channel, conversations with some of your smaller and other dealers in the U.S. that you did push some price here recently on the consumable side. Any truth to that? And did that have any impact in the quarter or in your go-forward thinking?