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DENTSPLY SIRONA Q3 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Andrea Daley
    Vice President of Investor Relations
  • Simon D. Campion
    Chief Executive Officer, President & Director
  • Glenn G. Coleman
    Executive Vice President & Chief Financial Officer

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Dentsply Sirona Third Quarter 2023 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 speaker today, Andrea Daley, Vice President of Investor Relations. Please go ahead.

Andrea Daley
Vice President of Investor Relations at DENTSPLY SIRONA

Thank you, Amy, and good morning, everyone. Welcome to the Dentsply Sirona Third Quarter 2023 Earnings Call. Joining me for today's call is Simon Campion, Chief Executive Officer; Glenn Coleman, Chief Financial Officer; and Andreas Frank, Chief Business Officer. I'd like to remind you that an earnings press release and slide presentation related to the call are available in the Investors section of our website at www.dentsplysirona.com. Additionally, historical financial data related to our new segments is also available on our website. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we may make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties.

Our most recently filed Form 10-K and any updating information in subsequent SEC filings list some of the most important risk factors that could cause actual results to differ from our predictions. Additionally, on today's call, our remarks are based on non-GAAP financial results. We believe that non-GAAP financial measures provide investors with useful supplemental information about financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. Please refer to our press release for the reconciliation between GAAP and non-GAAP results. Comparisons are provided versus the prior year quarter, unless otherwise noted. A webcast replay of today's call will be available on the Investors section of the company's website following the call.

And with that, I will now turn the call over to Simon.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Thank you, Andrea, and thank you all for joining us this morning for our Q3 2023 earnings call. Today, I'll start by providing an overview of our recent performance, and then Glenn will cover Q3 results and the revised '23 outlook. Before we discuss the recent performance, I wanted to comment on the recent events in the Middle East. I am deeply saddened by the horrific terrorist attacks on Israel and the continued injuries and loss of innocent lives. We have over 300 employees in the country and the safety of our employees and their families is our utmost priority. Currently, our business in Israel remains operational, and Glenn will touch upon this topic again when he covers the outlook assumptions. I would like to remind you all that we are hosting our Investor Day next Thursday, November 9, where we plan to cover our strategy and three-year plan in more detail, including the path to the adjusted EPS target of $3. As such, for today's call, our prepared remarks will be brief and focused primarily on a few key messages, Q3 financials and our outlook for the rest of the year. Now starting on slide four. In Q3, we continued to execute on our strategic plan to transform the business to deliver sustainable performance over the long term.

We are making meaningful progress on our objectives despite the challenging macroeconomic conditions that negatively impacted top line growth in the quarter and led to the revised 2023 outlook. The business experienced headwinds in certain markets, particularly Germany and the U.S. I'm sure you're seeing the data from ADA, and I'll comment momentarily on our own survey data. There were, however, some bright spots in the quarter, including 20% growth in China and double-digit growth in our U.S. CAD/CAM business. Our Aligners business with Byte and SureSmile also delivered another quarter of double-digit growth. In Q3, our EBITDA margins expanded 70 basis points, with additional contributions generated by our restructuring program. These initiatives remain on track to deliver the full $200 million run rate savings by mid-2021. Additionally, today, we announced our plan to execute $150 million in share repurchases during the fourth quarter. Despite the headwinds we faced in the quarter, we continue to build capability and stay focused on our transformation journey.

Now moving to slide five, let's start with DSOs. We are seeing positive results from our reinvestment into our relationships with DSOs. We continue to repair, rebuild and refocus on our relationships with this important and growing customer segment. Our performance in this quarter was flat sequentially. We are building positive momentum with a healthy funnel of DSO opportunities over the next several quarters. We are also fulfilling our renewed commitment to clinical education. Our live education events such as DS World serve as an important component of our overall clinical education infrastructure. These events give us the opportunity to engage with customers and provides unparalleled clinical education. This year, we hosted four DS World events, in the U.S., Spain, Italy and Dubai, with three held this past quarter. Approximately 7,000 participants attended globally, and we delivered over 250 education courses. At DS World in Las Vegas, we presented the Future of Care.

We believe DS Core will play an increasingly important role in delivering the future of care as the digital paradigm shift connects products and technologies in delivering care to patients. It's a key element of our strategy, and we highlighted expanding features at this year's event. Now of course, we continue to focus on innovation. We recently launched a new SureSmile simulator on DS Core, which has generated positive feedback. Customers have highlighted patient experience and efficiency benefits with the integration of the simulator into DS Core. We have also released updates to DS Core, including the communication canvas and lab ordering and viewer functionalities. We are particularly pleased with the communication canvas as it enables customers to highlight the entirety of a patient's clinical data and proposed treatment plan in one place.

Anecdotal commentary from customers indicates that it drives an increase in treatment acceptance rates with customers. We look forward to discussing and showcasing DS Core's capabilities in greater depth at our Investor Day next week. I'd also like to highlight OSSIX Agile which we recently launched as part of our implants, bone regeneration portfolio. Implants clearly remains an important part of our business. And while we have a robust portfolio, we continue to increase the capabilities of our commercial teams, expand investment in clinical education, and incentivize commercial execution. And finally, in Q3, we continued our cadence of quarterly regional business review meetings with meetings in APAC and LatAm. These meetings provide us the opportunity to dive deeper into each business and to engage with employees and customers. As a result of these reviews, we have identified key opportunities in each region for potential growth investments and have already taken action on some.

The consistent and highly positive feedback from our employees and customers strongly support continuing this in 2024. Now just before I turn it over to Glenn to discuss our third quarter results in more detail, I'd like to take a moment to comment on our revised outlook. As we continue to focus on the transformation of our organization, including driving greater discipline and accountability, customer centricity will continue to stand as a core theme. As such, we believe our quarterly surveys have helped inform us and view of market trends. The weak sentiment in Australia and Germany in Q1, followed by reduced sentiment in Germany in Q2, led us to exhibit caution during our Q2 earnings call in August, especially given our presence in Germany. With continued negativity among German and Australian customers, in addition to reduced patient volume trends in the U.S., we decided to revise our outlook, which now sits within the guidance range set at the beginning of the year, despite a worsening macroeconomic environment.

And with that, I'll hand it over to Glenn. Glenn?

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Thanks, Simon. Good morning, and thank you all for joining us. Today, I'll provide more detail on our third quarter results and an update on our full year 2023 outlook. Before doing so, I'd like to comment on the $302 million noncash after-tax charge in Q3 related to goodwill and other intangible asset impairments, primarily impacting our Connected Technology Solutions segment. We recorded this charge as a result of adverse macroeconomic factors, including weakened demand, particularly in Europe, as well as increased discount rates, reflecting the higher interest rate environment. Let me now move to our third quarter financial results. These trends impacted our top line results, which came in below expectations. Despite this pressure, our transformation and organizational alignment work enabled us to expand EBITDA margin 70 basis points, and with a lower tax rate, resulted in adjusted EPS growth of 20% year-over-year, in line with our projections.

Let's now move to slide six. Our third quarter revenue was $947 million, with reported and organic sales essentially flat year-over-year. Foreign currency was slightly favorable in the quarter, however, was lower than anticipated due to a stronger U.S. dollar. On a constant currency basis, we saw a strong sales performance in China which grew 20% year-over-year and improved sequentially from Q2. In addition, our Global Aligners business grew 10% and CAD/CAM grew double digits in the U.S. These improvements were offset by softer demand in key markets such as Germany and the U.S., most notably impacting imaging, implants and consumables. Despite flat revenue performance year-over-year and continued inflationary headwinds, adjusted EPS in the third quarter was $0.49, up 20%. The improvement was primarily driven by adjusted EBITDA margin expansion of 70 basis points to 18.2%, as a result of cost reductions from our restructuring program, effective cost management and the benefit of price increases implemented earlier in the year.

We achieved this while continuing to invest in our commercial teams and infrastructure. In addition, our adjusted EPS growth was impacted by a lower tax rate due to a favorable geographic mix. In the third quarter, we generated $134 million of operating cash flow, up 23% year-over-year, driven by improved profitability, a lower build of inventory and the timing of accounts receivable and accounts payable compared to the prior year. Free cash flow conversion in the quarter was 93% compared to 88% in the prior year. As a reminder, our long-term goal is to achieve 100% free cash flow conversion on a consistent basis once we move past the cash outlays associated with our transformation initiatives. Cash and cash equivalents amounted to $309 million at September 30. And our leverage ratio improved to 2.5 times, which is in line with our long-term targeted rate. In the third quarter, we returned $29 million to shareholders through dividends, with a total of $236 million returned year-to-date through a combination of dividends and share repurchases.

As Simon noted, we also announced this morning that we intend to repurchase an additional $150 million of shares by year-end. Let's now turn to third quarter segment performance on slide seven. Starting with CTS, our Connected Technology Solutions segment. Organic sales declined 4.6%. Within CTS, our global CAD/CAM business grew low single digits, driven by higher wholesale volume in the U.S. as distributors increased inventory ahead of DS World in September. Underlying U.S. CAD/CAM retail demand was also strong, particularly for Primemill and CEREC Primescan. The Equipment & Instruments business declined high single digits in the quarter due to softening demand for imaging equipment in the U.S. and Europe, which we attribute to rising interest rates and recessionary concerns in the market. In the near term, we are working with our distribution partners on financing alternatives to support our customers. Moving to EDS or the Essential Dental Solutions segment, which includes endo/resto and preventive products, organic sales declined about 1%, driven by lower volumes in the U.S. and Europe.

We did see strength in the rest of the world, which mitigated some of this negative impact. Shifting to the Orthodontic & Implant Solutions segment, organic sales grew 3.7%. Aligners grew double digits for the fifth consecutive quarter. This strong performance was driven by growth in both SureSmile and Byte. SureSmile grew 13% and continues to benefit from market share gains, new product offerings and differentiated outcomes. Our direct-to-consumer aligner brand Byte grew 7% as we saw higher customer conversion rates. On a full year basis, we expect our Aligners business to grow double digits but anticipate single-digit growth in the fourth quarter given macro pressures in our largest markets. Implants & Prosthetics grew low single digits in the quarter, highlighted by increased demand for value implants as well as growth in China due to VBP and market share gains. On a sequential basis, China implants grew 30% in the third quarter. And wrapping up with the Wellspect Healthcare segment, organic sales grew 6.8%, with growth across all three regions.

Wellspect also benefited from new product launches with Navina Mini, a minimally invasive irrigation product for bowel care and the LoFric Origo flexible, an intermittent male catheter, both of which have been well received by customers. For Q4, we expect a further acceleration of growth in Wellspect to about 10% year-over-year. Now let's turn to slide eight to discuss third quarter financial performance by region. U.S. sales declined about 1% due to lower sales of imaging equipment, implants and restorative products, partially offset by strong growth in aligners and CAD/CAM equipment. U.S. CAD/CAM distributor inventory levels increased sequentially in the quarter by approximately $20 million, driven by a normal build in advance of DS World Las Vegas in September. We expect that most of this will support installs in Q4. And because of this, inventory levels will likely be lower by the end of the year. Turning to Europe. Organic sales declined 2.8% due primarily to lower EDS and CTS demand as we continue to see prolonged recessionary impacts in Germany, our second largest market globally.

Excluding Germany, organic sales in Europe were flat compared to the prior year. That said, we posted strong performance in the Wellspect segment and with our SureSmile aligners. Rest of world organic sales grew 4.5% in the quarter, led by China, which delivered significant growth in implants and EDS. With the strong third quarter performance, our year-to-date sales growth in China has now turned positive with volume increases more than offsetting the pricing impact sooner than expected. Latin America, a smaller but fast-growing region for us, was another bright spot and grew double digits with improved performance in Brazil and Mexico. With that, let's move to slide nine to discuss our updated outlook for 2023. We expect to see current conditions continue to impact Q4. Our recent survey of over 1,000 dental customers, together with other industry research data, suggests that we're seeing negative trends, with decreased patient visits and increased cancellations.

In addition, higher interest rates will likely result in deferral of some higher-end equipment purchases. These macroeconomic factors, coupled with a more unfavorable FX impact expected for the remainder of the year, have led us to lower our full year outlook. We now expect full year net sales to range from $3.90 billion to $3.94 billion. This includes an additional FX headwind of $25 million compared to our prior outlook. We expect organic sales to grow about 1% compared to our prior estimate of about 3% growth. Regarding Israel, I'd like to echo Simon's comments. Our thoughts are with all the families impacted, including our colleagues that call Israel home, and their safety is the top priority. Israel is an important country where we have operations, including two implant manufacturing sites that generate roughly 3% of our total sales. Initiatives are underway to move inventory, identify alternative resources, and limit potential supply disruptions. We continue to monitor the events closely.

And while we have not seen a significant impact on our business to date, the situation remains fluid. Our Q4 outlook assumes minimal impact from the conflict in Israel. Moving to profitability. We estimate full year EBITDA margin to be greater than 17%, down from the prior outlook, due to lower expected sales and the impact of lower volumes and unfavorable absorption in our CTS business. Our updated outlook includes a lower tax rate due to geographic mix, largely driven by a reduction in pretax income projections in Germany as well as a lower share count due to the $150 million of additional share repurchases that are planned in the fourth quarter. With these updates, full year adjusted earnings per share is now expected to be in a range of $1.80 to $1.85, representing a $0.14 decrease compared to the midpoint of our prior outlook range. Of this amount, $0.11 is due to lower organic sales, $0.04 is due to lower CTS gross margins given lower volume projections, and $0.03 is from additional FX headwinds. This is partially offset by a lower tax rate, which is a $0.04 tailwind.

With that, I'll now open the call for questions.

Questions and Answers

Operator

[Operator Instructions] Our first question comes from Elizabeth Anderson with Evercore ISI. Your line is open.

Elizabeth Anderson
Analyst at Evercore ISI

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

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Elizabeth, thanks for the question. The short answer is no. I mean a lot of the progress towards the $3 is in our control is not dependent on the macro environment. And so I will lay out next week at Investor Day what those specific actions are in quantification.

Obviously, a piece of it is the macro environment improving, but most of the $3 bridge is things in our control, and so we're continuing to move forward with all the transformation initiatives that we previously talked about, that being the restructuring program. We're on track to deliver the $200 million of annualized savings by mid-2024. The SKU optimization and rationalization work that we're doing, the ERP work and so all that's continuing. We're on track and in our control. So nothing has changed relative to our plans.

Elizabeth Anderson
Analyst at Evercore ISI

Got it. Thank you. And you mentioned that you're getting some momentum in the DSO segment. Can you talk about sort of what's driving that? I know you have obviously an increased sales focus there. Are there certain products that are resonating? Do you feel like you're gaining share in certain areas? How do you sort of see the opportunity for kind of land and expand? Anything you can provide on that would be helpful. Thanks.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Sure, good morning Elizabeth. So, as you know, we invested in a more robust commercial footprint with DSOs last year, and we've a team leading our relationship with them. We are approaching the mall with our broad portfolio. I think one of the things that particularly resonates with them is our ability to make workflows more efficient and to increase treatment acceptance and that actually came out in our survey results as well. So we're having a lot of traction with DS core with some DSOs, they're very interested in that and the capability that, that can begin to bring to them. But it's like a lot of other things here. We need to focus. We need to focus on them. They are growing segments. We will speak more to that next week at Investor Day. And so far so good, and the engagement that we've received in return has been very positive and a big change in the past 12 months.

Elizabeth Anderson
Analyst at Evercore ISI

Great. Thanks so much.

Operator

One moment for our next question. Our next question comes from Kevin Caliendo with UBS. Your line is open.

Kevin Caliendo
Analyst at UBS Group

Hey guys. Thanks for taking my question. You didn't call out any of the -- any impact from some of the issues at one of the big distributors. Just wondering if that contributed at all in the quarter.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yes. Kevin, thanks for the question. Short answer is, no. There was no impact to Q3. Just to frame up the situation, though, I mean, Henry Schein is our largest distributor. We've disclosed the size of the impact to our business in our 10-K. But just to give you the rough order of magnitude numbers, annually, we do about $500 million of sales, which is about 12% of our consolidated revenues. Over half of those are in the US, about 20% in Germany. So those two markets alone represent 75% of the revenues, and it's mostly consumable products, so preventive and restorative products. Henry Schein has been a great long-term partner with us. We've been in regular contact with them over the last several weeks.

We're doing everything possible to support what they need as they work through their internal issue. I think most importantly, we're making sure customers are being supported during this transition period and continuing to get product. I would just tell you that it's difficult for us to quantify right now the potential impact to our fourth quarter results since we don't know how long this situation is going to last and whether or not the orders for our products are actually going to shift to any other distributors in the interim. So all that being said, I would just say we factored in some level of conservatism in our guidance for the potential modest level of disruption we may see in the fourth quarter, but no impact in the third quarter.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

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

Kevin Caliendo
Analyst at UBS Group

That's super helpful guys. If I can ask a quick follow up. Understanding now we've heard from two of the other publicly traded dental companies where the fourth quarter step down is pretty meaningful. You have the same. What are you seeing? Like what did you see in October? Is that what's predicating this sort of step down? Do you have the visibility going forward on the macro deteriorating? I'm just trying to -- I think we're all wondering sort of what's really happening in the marketplace. Did something happen at the end of September into October that worsened and is sort of under underwriting the guidance that we're seeing across the space?

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yeah. So Kevin, I would say a couple of things. Number one, relative to September, obviously we saw a fall off that we were not expecting. And obviously you typically would see an uptick in September coming off the summer months and we didn't necessarily see that to the same extent as the previous years. When we look at October, I would just caveat it by saying we have not closed our books for the month of October, but when looking at our daily sales trends, it's pretty consistent with what we've seen in September.

And if I exclude China from our September results where we had an easier comp, pretty much most of our businesses were down because of the macro environment. And clearly there was a step down in September and as we look at Q4 and how it started off, pretty consistent with what we see in September. So that's the reason why we've dropped our forecast here in the fourth quarter. And obviously, we spent a lot of time with customers and do a survey. So maybe Simon, you can comment on some of the feedback we got on our survey as well.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Sure. So, Kevin, as you know, 65% or so of our businesses is outside the U.S. So we do this global survey and we had over 1,000 respondents this quarter with more than 100 in every geography that we surveyed, US, Germany, France, Italy, China. And the themes are common. Patient cancellations are up. Volumes are down. In fact, 40% of those surveyed said that they did not have enough appointments coming into their clinics. Sentiments in Germany declined a small little bit. The US was flat, and Australia and New Zealand was flat as well. So it's not all doom and gloom, but there are some indicators around volumes and cancellations that are driving some of our thoughts here.

Brazil, for example, is positive. So a bit of a mixed bag. But again, as I answered to the previous question, the opportunities for us, we feel in environments like this, our customers are looking for more efficient workflows, they're looking for an increase in treatment acceptance, that's why our communication canvas and DS core can help, and they're looking to do more profitable procedures. So we feel we're in a good position with the technologies that we offer to help customers grow their business and be more profitable, even in light of the macroeconomic conditions.

Kevin Caliendo
Analyst at UBS Group

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

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Thanks.

Operator

One moment for our next question. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Sarah
Analyst at The Goldman Sachs Group

Hi. This is Sarah. I'm for Nathan. Thank you so much for taking our question. I guess just going back to the demand pullback and macro weakness, how are you thinking in Q4 about the impact by segment and the relative performance you're projecting for Q4?.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yes. So I'll take that one. We're not going to give specific guidance by segment. I did give some color, though, in my prepared remarks. So in orthodontics, we're projecting to have low single-digit growth or single-digit growth. Obviously, there's a slowdown from what we saw the past five quarters is a combination of the macro environment for SureSmile and also Byte and some likely pressures we're going to see with the student loan repayments being put back in place. And so we're being a bit more cautious on Ortho, although we still expect to see growth in the fourth quarter. We expect to see very strong growth out of Wellspect, a lot of that driven from new products. So close to 7% organic growth in the third quarter. I mentioned double-digit growth here in the fourth quarter. So those are two segments that we expect to grow.

When we look at CTS, we were down about 4.5% or so in the third quarter, modeling something probably pretty consistent with that as we go into Q4. So we're not expecting really any improvement in the overall segment there. And then for EDS, again, we're probably projecting to be flat, plus or minus a point there. So that just gives you some high-level color for the segments.

Sarah
Analyst at The Goldman Sachs Group

Helpful. And then just going off Kevin's question on the Henry Schein. Have you seen any change so far ordering patterns from the other distributors you request?

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

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

Operator

One moment for our next question. Our next question comes from Jeff Johnson with Baird. Your line is open. Jeff Johnson with Baird, your line is open. If you're on mute, please unmute yourself. Please standby for our next question. Our next question comes from Justin Lin with William Blair. Your line is open. Hello, Justin, Lin, if you're line is - if you're on mute, please unmute yourself.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Hey, Amy, can we go to the next question, please.

Operator

All right. Please stand by for our next question. Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar
Analyst at Piper Sandler Companies

Hey, good morning Can you hear me okay?

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yes. Thanks, Jason.

Jason Bednar
Analyst at Piper Sandler Companies

Great. Thanks. I wanted to start on China. The growth there was pretty impressive. But they're obviously still the anticorruption campaign that's been underway across that market. Are there any areas where you're feeling the effects from that campaign? Do you think that held back your growth at all? And any specific category or segment any challenges in interacting with doctors, training and education? And I guess, along the same lines, have you seen that situation get any better? Has it improved here as we've gone August, September, October.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yes. I don't think we've seen any change from the last several months, and we really haven't seen an impact on our business to date. We were very happy with the performance in China. I mentioned the strong year-over-year growth of 20%, implants actually grew 30% sequentially year-over-year, it almost doubled. So we had really strong implants performance, and we're expecting to put up some very good growth here in the fourth quarter.

I think one of the real positives though in China is our implants business actually on a year-to-date basis is now positive. So we fully offset all of the pricing erosion from VBP. And we're seeing really strong momentum on the volume side for implants. So on the whole, China is doing well. I would just say we see the same pressures though with our CTS business in China. So areas like imaging and some of the larger high-end equipment are down. And even with that, we're putting up 20% growth here in the third quarter. So it's not growth across the board. We are seeing some impact like we're seeing in many other markets around the higher-end equipment as an example. But very happy with what we're seeing on implants and overall performance in China.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

I would just add to that. We've -- I think I spoke before about we rolled out a new code of business conduct here at Dentsply Sirona, where we're over 99.5% compliant to that internally now. And Asia Pacific, which obviously includes China is 100% compliant to that. So we said when we arrived here, we would take ethics compliance very seriously and we've rolled that out and the Chinese are also required to take that training on our behalf as well. So

Jason Bednar
Analyst at Piper Sandler Companies

All right. Very helpful. Thanks. For my other question and my follow-up here, there's plenty of evidence out there, adult orthodontics is pretty pressured right now. We've heard from your peers same thing on this topic over the past week. Your orthodontics business is holding up, I'd say, relatively well. But Glenn, you talked about a little bit of a softer outlook. We think about the investments you've been making in this category to stimulate growth. I'm just trying to put this all together and love to hear where you see the market and your business, again, the adult orthodontic part of the market going over the next 12 to 18 months. Given these elements, the macro, the student loan repayment situation restarting, SmileDirect filing for bankruptcy. Just how do you see that part of the market right now?

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

So let me jump in first and then Glenn can to some specifics, Jason. In relation to SureSmile, we just launched the SureSmile simulator. So we continue to innovate in those areas as well. That has gone very well. Our initial rollout is suggesting that treatment acceptance is up with respect to SureSmile because of this simulator and we also are in pilot with the Byte Plus program as well. So that has been well received by our pilot customers. So from an innovation and engagement perspective, we're doing well. Our NPS scores are up, particularly on the Byte program. And I'll hand it over to Glenn to deal with some of the specifics of your question.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yes, I think when we look at the intermediate and longer-term, this is a very attractive market, the fastest-growing area in dentistry. So we still see it as a strong mid-teens growth type market for us over the long-term. The short-term situation, we're just being very cautious given the macro environment, given what we're seeing with student loans and what that's going to mean to our direct-to-consumer business.

And obviously, we look at the SmallDirectClub as an opportunity. So we'll see what happens there with respect to their bankruptcy announcement and what ultimately we could get from that. But right now, we're being cautious going into the fourth quarter, which I think is prudent just given the macro environment and some other things that we're seeing. But again, this is a top focus for us and an area that we think we can grow consistently in the double-digit range once you move past some of these acute pressures we're seeing in the short-term.

Jason Bednar
Analyst at Piper Sandler Companies

Okay, great. Thanks so much guys.

Operator

[Operator Instructions] Our next question comes from Jon Block with Stifel. Your line is open.

Jon Block
Analyst at Stifel Nicolaus

Thanks guys. Good morning. Is there a way to think about the headwinds that you experienced later in the quarter? It just seems like the exit rate was heavily impacted or maybe call it the velocity of what was experienced in September. So, -- where was that most acute? I mean looking just at your breakout, it seems like CTS, but was that US? Was it EMEA? Was it both? And then maybe more importantly, Glenn, what's the assumption that you've embedded sort of for the balance of the year as we think about rounding out calendar 2023 in terms of what you factored into the guide? And then I ask a quicker follow-up.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Yes. I think two things. One, we definitely saw a falloff in the U.S. and Europe. Those are the two major markets that we saw the drop. And it was really in CTS imaging for sure, had probably the largest impact, even treatment centers, some of the instrument categories. But those were the areas that we saw the falloff.

On the positive side, CAD/CAM and our milling as well as our CEREC Primescan had a really strong quarter overall, including the month of September relative to the US business. So we were very encouraged by that. But most other categories, I'd say, were down more acutely than we were expecting.

And also on the consumables side, we also did see a fall off. Now, part of that was some of the dealers reduced their inventory levels. So the retail demand doesn't necessarily reflect the wholesale sales that we show in our results. But even with that, I think consumables were a bit lighter as well, especially in restorative.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

In terms of the assumptions moving forward, Jon, I would just say we're assuming pretty much consistent trends from what we saw in September. And that's why we reduced our forecast here in the fourth quarter.

Jon Block
Analyst at Stifel Nicolaus

Okay. That was very helpful. And I would guess we're going to obviously get more details next week on 2024. But let me just sort of noodle on something you got a lot of great disclosures in your releases, your presentations and your Q. I think this year going into 2023, you implemented some price increases. I think you at least alluded to that as like a driver of growth, if you would, in the first half of 2023. And now we've got a more difficult environment, right, with macro. And so when we think about 2024, is there pricing power in the portfolio? Or was that lever really drawn down in 2023? And when we start to frame 2024 topline, we think that might have to be a little bit more dependent on volume relative to price? Thanks guys.

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

I would say we have benefited from price thus far in 2023, Jon. At this point, I would say we need to get after our volume more than get after our price, and that's what we're driving with our commercial teams globally. Some segments, for sure, as you well know, are being impacted by price, specifically scanners.

And that's why we introduced Primescan Connect about a year ago, which has done pretty well for us globally. And we also reduced some price in certain geographies on our scanners, and we - that resonated with customers, and we saw volumes pick up. So we need to stop relying on price and get after volume for our sales growth and because our plans needed as well.

Jon Block
Analyst at Stifel Nicolaus

Thanks, Simon.

Operator

One moment for our next question. Our next question comes from Jeff Johnson with Baird. Your line is open.

Jeff Johnson
Analyst at Robert W. Baird

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

Glenn G. Coleman
Executive Vice President & Chief Financial Officer at DENTSPLY SIRONA

Yeah.

Jeff Johnson
Analyst at Robert W. Baird

All right. Good. Thank you. Good morning So Simon, I'm trying to respect the -- waiting until the Analyst Day next week for some of the comments around the LRP. But it sounds like you are reiterating your commitment to that $3 number in 2026.

I just want to make sure I'm hearing that correctly. And more importantly, I guess, Glenn, think about that $3 number that you put out at the beginning of this year. Obviously, the U.S. dollar has been much stronger this year.

We've now got some end-market concerns that have flared up for sure. We've got inflation that looks like it's staying more persistent and probably higher than would have been contemplated at least a year ago.

So I guess my point is -- or my question is, have you tried to quantify how much incremental headwind just from factors outside of your control that have happened since you put that $3 number out.

And Simon, I would assume you're not going to be cut back R&D or go-to-market commercialization spending or anything. So how do you kind of bridge that incremental headwind that has come up here across all those issues in the past year? Thanks.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

So. Good morning, Jeff. Firstly, we will be reaffirming our $3 in 2016 at our Investor Day next week and Glen will walk through the bridge from where we are to the $3 during his session next week. For sure, we do not intend to reduce how we go to market or how we innovate.

We simply need to be more judicious with where we innovate in and what we innovate in and how we spend our SG&A dollars so that we can get after in my response to John's question a moment ago, we can get after volume with our sales force in all our geographies. So commercial and R&D are sacred to us. We just have to spend our money more wisely in those areas.

Jeff Johnson
Analyst at Robert W. Baird

Yeah. Fair enough.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Sorry, I was just going to comment on your other part of your question. So relative to the headwinds and impact to our $3, keep in mind, when we laid out the $3 target, our guidance for this year was $1.80 to $2. So we're still within that guidance range, even though we've had a recent reduction.So we had just started off the year stronger, and obviously, we're dealing with some headwinds at the moment. But when we laid that out, we're at $1.80, and we're pretty much in that range. So that's why we're still confident that we can get to the $3.I will discuss more next week, the path to get there. But probably the most important message and takeaway is most of the path to get to $3 is in our control and things that we've already completed or are in process.

And so probably two-thirds of the way there is all within our control and not dependent on the macro environment. So I'll give more specifics next week, but I think that's a key point why we're still confident we can get to the $3.Obviously, if the macro environment extends and is prolonged for a long period of time, it will be much more challenging to get there. But our view is that this is more of a short-term acute situation on the macro environment.

Jeff Johnson
Analyst at Robert W. Baird

All right. That's helpful. And then I guess as my follow-up question, just on the dental implant business. I think, Simon, over the last month or two, we've heard you kind of maybe soften your view on when a turnaround, especially in the US implant business you might expect to see? I know, you've been putting more sales reps out there, you've been putting more clinical education and other commercialization effort behind that business. But talking about maybe that getting back to market a couple of years from now instead of more in the near-term. Does that just take more spending there? Is it a pricing issue? Do you need to increase maybe your reliance on a lower-priced product like MIS, notwithstanding, I guess, the Israel issues right now. But just how do you look at that implant business, the strategy there over the next year or two and trying to get that back to market? Thanks.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Thanks, Jeff. So implants, it's a very interesting business, nice growth, good margins, and we have not performed historically in this space. We spoke before, I think, on our Q2 call about the portfolio survey work that we were doing, and we completed that in Q3 with over 2,000 respondents. And I would say, overwhelmingly, and I don't use that word likely, but an overwhelming favorability with respect to our offering across all categories, including implants. I think the band is a lot tighter in implants than it is in other areas. But our customers, over 2,000 of them have said that we have a robust portfolio in implants. But where we have work to do is around the capabilities of our commercial teams and the investments that we've made in clinical education over the past number of years.

So let me deal with the second piece first. We have invested heavily in rebuilding relationships through our clinical education programs this year. We had a World Implant Symposium in Turkey earlier this year with over 450 - sorry, Athens, Greece earlier this year with over 450 people attending. We just had another group of Polish clinicians in Warsaw. Warsaw attend an implant session. We continue to reinvest in rebuilding our relationship with implantologists through education.And then on the sales force capability, clinical capability side of things, the turnover that we've experienced in our implant sales force over the past number of years has whittled the capability of that group down, and I think it's around 50% or about 12 months of tenure, including the new people that we brought on, we are training them heavily. We had a second or third training with those - that team in May and I think it's beginning to resonate.

The challenge has been is that the accounts that we've lost, their volume is pretty significant. And as we bring on new accounts, it's not enough right now to offset those volume losses.However, we just had a complete business review where we went through every sales manager in the US, and there are a lot of green shoots in terms of engagement with not only the implantologists but also their referral network as well.So for sure, it's taking longer than we would have hoped, but we are investing in the capability of our team. We're investing in rebuilding relationships with our customers and their network, and we're investing in customer education, which are the main things that came out from our survey.

Jeff Johnson
Analyst at Robert W. Baird

Thank you.

Operator

And I'm showing no further questions at this time. I would now like to turn the conference back to Simon Campion for closing comments.

Simon D. Campion
Chief Executive Officer, President & Director at DENTSPLY SIRONA

Thank you, everyone, for your attendance on today's call. I would like to reiterate some key points before we close. Firstly, we remain intently focused on driving value for all stakeholders through innovation and execution. Secondly, while the macro environment is uncertain, we see bright spots in the business and maintain our confidence in improving execution which we believe will position us better to navigate external challenges. And thirdly, we look forward to hosting our first Investor Day next week, and I encourage you all to join us as we share details about our strategy and long-term plans.

We will continue to prudently act in the best interest of the company and our stakeholders, including our investors, patients, customers and employees. And finally, on behalf of the management team, I want to thank all Dentsply Sirona employees for their dedication to the business and the necessary transformation work that is underway, and we especially want to express our thanks to employees who have the part of the organization in the last quarter and wish them all well in the next phase of their careers.

Operator

[Operator Closing Remarks]

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