Dentsply Sirona Stock

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?

Yes. You got it, Jeff. So let me kind of get after the first one. So in EDS, in particular, most of the pressure remains in Europe. And I'll tell you, we've actually seen some of our bigger dealers make significant orders in the second quarter that were positive and double-digit growth. There are 4 other dealers. Actually, most of them are private equity owned, and we're seeing them take historic inventory levels from about 12 or more weeks down to possibly 8 weeks. When we talk to them, that's what we're seeing. We don't know if it's a factor of them coming into private equity or not.

But that's really what we've been talking about is we're seeing the sell-through occur. We feel positive as to those activities that are occurring. It is multiple dealers, not one, I think, in Europe. And that's the thing I do want to make sure folks understand. And that is really kind of coming out into the restorative and endodontic side more than anything else. I think in the U.S., there are different things we need to do with our portfolio, our pricing, our positioning, to be more competitive.

And I think, again, as we educate the team and refocus in endodontics in particular, but also pay attention to restorative, there's opportunity there. Some of our investment and accelerated investment in R&D is going to give us more opportunity to go provide that and capture it. So that's really the flavor between those 2 areas.

Pricing, there's always a price tweak here or there. We've not taken anything significant in pricing. I would tell you, you're hearing it through the channels. We haven't implemented anything out there. It could very well be just cleaning up price, shifting SKUs, some level of mix that might be impacting that. But really have -- really had no price -- or no price increase since September of 2025.

Your next question comes from the line of Kevin Caliendo with UBS.

I just want to sort of understand what's embedded in the current guide from the market perspective? Like what do you expect the markets to do over the second half of the year? And how do you feel you're going to do against that? Meaning, do you feel like you're going to be in line with the market, lose share, gain share against that? That's sort of my first question. Just sort of what's the expectation for your -- for the handful of end markets that are most important to you?

And then the comment about distributor inventories was interesting. Just given the new distributor relationships that you have, were you saying that broadly speaking, inventory levels are lower or on a same-store basis? Because I was wondering if, like, you signed a new distributor relationship, would you be putting some inventory to them as well? I'm just trying to understand what that meant or how to think about that.

Okay. Well, let's start with that last one, we'll go backwards with that. So keep in mind, when we're signing up the U.S. dealers, they are for capital expansion. And so we're not actually having them buy capital and hold it. We're actually working with them to move that differently. So you wouldn't see a lift that way.

My previous comment from the previous questions was focused on dealers for the EDS models that are out there. And to your point, if we were to open up a new dealer there, they would buy inventory, we would see that. But we have not done that. That's really what I'm thinking that way.

And Kevin, you had the first part of the question. I just need you to kind of go through it again because I think I -- it did slip my mind.

I'm just wondering how to think about what you're expecting in terms of the overall market. How do you think you're going to do relative to that, that what's embedded in the guidance? Like are you going to just be along with the markets? Are you going to gain share or lose share? How should we think about it in the various segments? Again, what you're -- what's embedded, yes.

So a couple of things here. I think when you hear the reports out from competitors about the market stabilization, I agree with them. I think that, that's there. We can all pick a number, but I'll pick one and say about 3% growth would be out there. However, what's embedded in our guidance is very different. We're calling out a turnaround, and we're trying to go from negative into flat into growth over time. That's not something we would achieve within the 12 months of 2026.

And so our guidance was really more about the execution of clinical programs, rep education and going out the execution. And what I had said in the past is I think we would have negative Q1, negative Q2. I'm thinking somewhat more favorable, not positive, but a little more favorable or less loss in Q3. And I'm looking in the U.S. to exit the year with a plus sign, and that's really where we're getting into. I think getting more into market and market dynamics for us will be more of a 2027 as we execute the Return-to-Growth Plan.

Your next question comes from the line of Steven Valiquette with Mizuho Securities.

It's Steven Valiquette from Mizuho. With some ongoing discussion this quarter among digital equipment manufacturers, customers -- seeing customers continue to move to lower price points on intraoral scanners. We heard more about some movement to leasing arrangements for digital equipment instead of straight product sales, at least from some manufacturers.

So I was just curious to get your updated thoughts on competitive landscape in IOS, but is there any inflection on leasing versus purchasing for higher-priced items from your perspective? And also just remind us on your own philosophy on leasing options to practitioners for your own digital equipment offerings.

Okay. It's a great question, Steven. So a couple of thoughts here. I think you always offer many options depending on the customer, if they want to buy it outright, if they want to do it over time, if they wish to do it through a lease. All of those are valid things that we're open to do and have been doing as well. I think you're right, there is a growth of lower-cost intraoral scanners, and there's a quality that also gains with them over time.

And so while I do think there's always room for premium in the future, you need to show the flexibility of how to get it into the customers' hands. And quite frankly, I think you also need to have the offerings at different levels depending on what the customer wants. It is something we're looking at. Those options are things that we have in place. And I think really for me, next-gen intraoral scanners, we need to look at high end, mid and also low, and that's something that's in part of our innovation program.

Your next question comes from the line of Erin Wright with Morgan Stanley.

A couple of, kind of, modeling questions. One, just on the organic constant currency top line growth, I think you gave total revenue growth, but did you give a true underlying, kind of, organic metric that you're anticipating? Or what are you anticipating in terms of the second half there? And just remind us what's embedded from a currency perspective.

And then on the tariff refund, I guess, does the guidance then reflect share buybacks associated with the tariff refund or future -- I just want to be clear in terms of what's embedded in terms of the EPS number and not, especially when it comes to, like, share buybacks?

Yes. So what we saw, Erin, in the beginning of the year was a very strong FX rate that we said would taper down over the quarters. That 3.5% to 3.6% for us is just what we expect to hit for this year. I don't really have the exact amounts that are broken out. We didn't provide anything between constant currency as reported. We're just getting into those ranges knowing the currencies that we anticipate for this year.

The favorableness of the first quarter would diminish in second, and we actually think neutralize or possibly even at the end of the year, kind of negative out. So I would say that's not going to be a big driver for us along those lines with it.

Again, the tariffs, we were calling out the fact that we're not changing the base, and we're just dropping the tariffs eventually out there for modeling purposes. That's really what we were trying to do is just distinguish them out. We're obviously looking to not have that as a measure year-on-year because it's such an oddity. It's got to be off on the side when we talk about Q2 of next year.

Okay. And then you spoke about some of the distributor relationships you inked a deal with Medline with their Sinclair offering in Canada. I guess, how is that relationship different or unique? Or how should we think about that opportunity? And then just overall, the North American distributor relationships, how are those progressing?

You got it. So in Canada, it's just great because, again, Sinclair is a great business to get into. We do a lot with them already. It's an expansion of what we have, but expansion on the capital side, which we did not have. And so they've already got the natural reach and feet on the street to actually get our products in front of more customers in a faster pace in Canada, which is a very strong market for us, and actually been an area of growth that I think if it continues, we'll call out a bit more in future calls with it.

And I think on the U.S. side, what I have seen, in particular, without calling out names, are 2 of the new dealers that have grown double digits so far. But again, I'm a little cautious. I want to get through Q3, maybe start looking at that in Q4. But for a few that I've added on, I'm really happy with what I'm seeing with their growth. They're smaller numbers and don't drive the overall business, but they're smaller numbers today, and they will grow and become significant over time, and that's really what I'm looking at.

Your next question comes from the line of Daniel Grosslight with Citi.

On CTS in the Americas, I think we were down around 10-ish percent, nearly 10% constant currency. Can you just help us understand whether this is primarily being driven by CapEx deferral, just given the macro environment, the rate environment. Are you seeing any kind of competitive displacement in CAD/CAM and Imaging, particularly from lower ASP type of offerings?

Yes, you're welcome. We're not seeing a huge bleed out competitively at this point. We think it's a little more timing. As you know, capital is always bumpy and lumpy. And so I think that's what we're going to attribute it to. To your point, it's mostly in the CAD/CAM area, like we called out.

But I would say at this point, I'm not seeing anything that would take me off task. I don't feel like we're at a competitive disadvantage with this. I think it's just a matter of closing out deals that are in the pipeline.

Got it. Okay. And just an accounting question on the tariff impact or the tariff benefit this quarter. I think I heard this, but I just want to double check that full $44 million hits the P&L. So if I were to normalize for that, I would just subtract $44 million from gross profit and adjusted EBITDA? Or is there some other dynamic that I'm not accounting for there?

You are exactly right.

Your next question comes from the line of Michael Petusky with Barrington Research.

Dan, I guess you sort of called out the formula for winning that Wellspect is doing. And obviously, that has something to do with new product launches and innovation in their space. And you obviously come out of a space where innovation was a huge key to winning. And I'm just curious, the R&D -- the incremental R&D spend you guys are doing right now. What's the mandate? Is it taking bigger swings? Is it hitting more singles?

And I guess just in terms of time frame for impact, I mean, is there anything likely to actually impact the work you're doing now impact in mid- to late '27? Or is '28, '29 more of the time frame?

You got it, Michael. So with Wellspect, to your point, we went back in the Return-to-Growth Action Plan, and we've invested in them in several different ways to actually fuel the ability to get the products out and penetrate the markets, and they're responding well. And that, to me, is one of those ones where you can actually fund it by itself and allow it to grow. And so I look at it as a completely separate organization, we just consolidate down for reporting. But the point is they continue to perform. And again, even their pipeline is rich for other products and going out that way.

On the dental side, the innovation and the increase in innovation that we had done this year was really intended to accelerate things. And so as you know, DS Core is a platform and putting more functionality into the digital dentistry flow like Implants on Core or Ortho on Core, 2 examples.

The incremental money should move those forward meaningfully. Now I have to get FDA approval. So I do think goal is to have it done in late 2027, but it's about when we file and get approval. Certainly in 2028 would be the thing. And had we not done that, that would have been further out by at least a year. So there are main things that are out there.

In addition, given the size and the importance of EDS, we've put more products and more functions therein. And so we're looking to make sure that, that stays fresh and we remain a leader and we invest in it.

Now to answer your question, it's a mixed bag of home runs and singles like you have to do with everything. It can't all be big risk or too small risk. And so it's a blend. It's also both organic and inorganic opportunities for us to look and exploit and grow faster. So it really kind of depends on the products and the opportunities that really is up and down between those.

Okay. Great. Dan, can I just sneak one quick one in? I think this is a quick one. Obviously, historically, outside of the U.S., Germany has always been a key market. And I don't think I've heard you talk about that tonight or possibly even last quarter. Can you just give an update on what you guys are seeing in Germany across the board?

Yes. No, I didn't call it out, but I would just tell you it's probably more my style than anything else. I've got nothing that I'm worried about with Germany. I was just focusing more, as you know, U.S. is top priority. How we fund EMEA is out there and then make sure we get Asia Pac to grow. You are correct. It's still one of our top markets. It's doing okay. It's not going to be driving a large amount of growth. I think it's moving around market pace right now. But it really wasn't anything for me to call out with what we're trying to put out message-wise.

Your next question comes from the line of Joseph Downing with PSC.

On for Jason today. I'll keep it to one. But Dan, when you look at the segment breakdown, it looks pretty different depending on the geography this quarter. You have CTS down high singles in the Americas, but up double digits in APAC, while OIS fell in the Americas and was held closer to flat in EMEA.

Just curious, like, how do you run one Return-to-Growth playbook when each unit's soft point sits in a different geography? And then which of these regions within each segment gets, kind of, first dibs on resources here? Just trying to think of how you're thinking about that.

Yes. It's a fantastic question. Thanks for asking it. So listen, everything matters, but U.S. is top priority returning to growth. We've made that clear. And in that, getting Implants and CTS up on its feet through the dealer expansions with the education we've spoken about is critical while maintaining the lead in EDS. And so that U.S. itself is fairly focused in and going.

When it comes into EMEA and that leadership team, we've made sure they are funded. But again, they don't need as much of a Return-to-Growth Plan. That's really about addressing the EDS dealer inventories and driving through. I think they're in good shape.

And again, very different will be Asia Pac and how you get into China, how you continue to expand in Australia and Japan. So the good news is they all fit into the same model of customer-first innovative products by listening to the customer, clinical education investments and strong reps that do workflow. That applies globally. And then you just put it at different points along where they are in their maturity curves.

Your next question comes from the line of Keonhee Kim with Morningstar.

Dan, I recall you kind of highlighting investing behind education, especially in implantology, as one of the main sources for Return-to-Growth. I guess, kind of, as we sit today and when assessing the ROI on that front, how do you feel on that?

And then do you feel like the long-term picture has improved or stay neutralized? Any thoughts there would be helpful.

Yes, you got it. So the thing with clinical education is it's long-term investment. What I mean by that is, spend it this year, you might see in Q4 some uptake, but it's really about getting the cadence throughout the multiple years by gaining users who are aware of your products and use them continuously.

And so you can run through it, but it's really a main driver of all the competition. It's really something that really works well within this market. And it's really about making sure the generalists, specialists, the referrals all work together and are educated.

So that money, I know is well spent. I have seen what happens when you trim it down. And so getting it back on track and then getting above market is key that way. I would say that I'm pretty happy with where we are with that.

One thing as well with Q3 in particular, and we talked about where that was going, there will be a bolus of investment occurring there without the revenue coming up to that, that will come in later quarters. So you're going to see the return to health plan not pay attention and quite frankly, care about quarterly outcomes. It's about spending the money at the right time for sustained long-term growth.

Great. That's helpful. And then just one more. I wanted to double-click on the CTS. CTS in APAC has now had, kind of, 2 quarters of sequential improvements. And I'm curious if there's anything specific going on in the region that we're not seeing in other categories within the region, if there are any, like, one-timers or big inventory stocking? Or do you feel like the market condition is, kind of, I guess, improved a little bit in the next -- or since the beginning of the year?

I want to make sure I heard you. You were talking about APAC. Is that what your question was?

Yes. CTS, especially in APAC.

Yes. It's really about a program that we put in place. I'm not going to explain the program here, but it's really an execution we did in 2 of the key markets that's working very well. We designed it in, honestly, the fourth quarter of last year. Began executing it, as you just kind of called out, in Q1. And we're seeing very positive uptake with what it is we're doing there. And it is applicable throughout the world, but we're actually trying it right now within certain markets in Asia Pac.

This concludes the question-and-answer session. Thank you for your participation in today's conference. This concludes the program, and you may now disconnect.

Okay, guys. Great thanks. We're going to get going. And next up, we have DENTSPLY SIRONA, one of the leaders in the dental market. And joining us is Dan Scavilla, Chief Executive Officer. Dan took the CEO seat, I think I've got this right, about August of '25. So coming up on a year pretty soon and really appreciate you joining Jaws & Paws this year. It's great to have you. I'm going to actually kick off in a similar way that I did with Fred.

I'm just going to change the time line. So Fred has said, hey, you've been on the job 90 days. And for you, I'll say, the first 300 days on the job, Dan, what's gone better than planned? And maybe just what's proven to be a little bit more challenging?

Yes. it's a great question. I wish I had listened to Fred, so I'd give you a good answer like he did. But anyway, two things. I think what's going really well, what I'm most pleased with is the level of talent that has come into the U.S. commercial organization and the speed at which they've reorganized and have addressed the segments. It's really for me beyond my time line and doing well that way.

What I want to do better with is as we think about the customer and execute with urgency, there's still processes internally for approvals or approaches that have to improve. And so I feel like we've got a great strength on the commercial side. I want to move faster on the inside supports them and really it's about changing the process and a little more urgency with the team in-house.

Okay. Fair enough. Maybe talk about areas of the business where 10 months later you feel more bullish about future growth prospects or less bullish? I mean, obviously, a pretty diversified business at DS. So maybe if you want to tackle it by division or just overall thoughts there.

Yes, I'll give you two answers. Again, I still remain bullish in the fact that the U.S. has a great runway here, the chance to improve and gain back share and grow, which I think is great. I think Europe remains strong for us even despite a weak first quarter. And so again, even with Asia Pac, I think longer term, that's great stuff.

Product-wise, the addition of the dealers that give us more reach within capital in order to digitize and create that placement, I think is something I'm bullish on that way. I'm looking at ortho and seeing where we can find a market niche that makes sense for us. That one I'm still evaluating and seeing where we're going. And the rest of it comes down to basic execution, how do we do this better than we're currently doing with the products we have.

Okay. And in a little bit, I'm going to try to go division by division and certainly have some questions on ortho. Maybe before we go there, just overall, I've been asking a lot of the dental companies that have had the privilege to see throughout the day, how are trends? And I want to ask that without a leading question, but of course, there was sort of a really modest consumer confidence number in the U.S. last Friday at all-time low. What do you think about the overall market?

Yes. Listen, from what we've seen so far, there's a stable market. As you know, it's been suppressed for a couple of years anyway. And does it look like it remains stable with a little bit of improvement. I'd say, yes. I'm going to give you the but here. Given where we are as a company, it doesn't matter if the market is up or down. We have to actually execute better than we are, and I can't use the market as a reason to grow or not. We have to do better. And so I look at the market, it's interesting. But ultimately, it doesn't take me off task of the turnaround we're doing.

Okay. So you've got sort of here are our goals, and we're going to execute on those goals and market fluctuates up or down, regardless, we're going to go ahead and get done what we need to get done.

100%.

Okay. Great. Distributor agreements. So this one I might have to update on the fly. I was going to sort of ask you to talk to your decision to expand the number of distributor agreements. And I have in my script, 4 new agreements this year, but I think there might have been more.

We're 5 now.

You're 5 now. More is usually better. But my question is, was access to DENTSPLY SIRONA products really the issue?

It's a great question. So this is how I approach it. you have a great deal of capital purchases through dealers. And if you are not on dealer contract and they're putting the products in front of the table for a dentist, the chance of you being picked is pretty slim.

So you need to actually be on those contracts in order to have your products displayed and going. If you think about us as a turnaround and an accelerator, I have a chance to have a third-party team go sell my products at no cost to me. I can take my time and resources into my turnarounds in my direct businesses while they expand that piece of it. And so it's really a dual strategy that way. I don't think we'll say keep expanding.

There's a logical amount that makes sense. You saw me chatting with Fred. I mean we're in the middle of having conversations in a very positive way. We'll see how we land that if we land that with the two teams. But with his newness and our focus, we just haven't had a chance to get that down there, but that would be one of the ones I'd love to put in place, I would hope, if all goes well by the end of the year.

Okay. So we could actually see that 5 number creep a little bit higher or expand in certain cases.

I doubt you see 15-plus type of thing. I think you need the right national and regional coverage and not only for the sale but for technical service coverage. And that's really the balance we're doing now.

And some of those deals, Dan, are pretty new, but any color you can share on traction to date or early feedback?

Yes. I'll tell you my initial assumptions having sold a great deal of capital in med device was that we would sign people on around the first quarter, train them, they go sell and build a pipeline and maybe late third quarter, fourth quarter, we start seeing some fruit. And I'll stick with that goal. Benco actually did better. They actually sold and installed a unit in the first quarter, having just signed.

And so that was really a positive sign. And the way they interacted with the DS team was amazing. And there's a closeness there that's very positive to me even to the point now where as a Benco rep sells something, I'll send them a personal note of thanks. And so that relationship is building strong. I think we have the ability to take that to the other dealers and create that same leverage as well.

Okay. And I want to push a little bit on the new drop ship model with the distributors. And I just want to push because I don't think I fully understand it. I get some moving parts. And I'll maybe do a a good or not so good analog over to animal health. So from their perspective, I'm thinking, hey, look, drop ship, it's going to free up the distributor's cash. So that's a good thing for them. I would think they would be receptive. What are you getting? Are you getting slightly better economics since it's more of that drop-ship deal? And then are you able to take that maybe lower margin and plow it into other areas of the business?

I think you have the majority of it, exactly what it is. So there's a couple of things. You have been selling into dealers on different programs, then you're waiting for them to sell out. There's a lumpiness that occurs for them that's not beneficial or efficient from their cash flow. You're actually paying promotions or extra incentive for them to reduce their inventory to get it out type of thing. And all that stuff has kind of wasted money. If you come into a drop ship you're able to actually free up their cash. To your point, it results in a different margin where we both win-win.

But for me, in particular, I can level load my production and handle it in a better way. DS World, you always have a third quarter big lift of people buying in advance of that. You create all of this, you carry it, you might not sell it through. I can eliminate that as well. So I create better controls for my inventory and cash flow and for theirs. And I don't believe it has an impact -- a negative impact certainly on the customers.

How do I -- why did -- why wasn't this pursued before? I'm not saying it's not a novel idea. How do I say this going to manner.

I wasn't there, so you fire away. I don't know. I'll be honest with you. And I'm not saying that you and I are the smartest guys in the room, we're clearly not. But I just think it was a -- I had a great opportunity others didn't have and that all of the contracts were canceled. I could start from scratch. And I took advantage of that to what I think can be a more sustainable, scalable approach.

Still going to burn down about $30 million?

Yes. I thought some would get through in the first quarter. Honestly, I was surprised it didn't. But I do think that second through fourth quarter, that should burn down. And the logic is we know what inventories Patterson and Schein have. I think they would sell them through before they buy more. And so I think that's just what we have to monitor. So I'll stick with that number now because it's the best data we have. And I think I would assume that by the time you exit fourth quarter, they would have sold through.

Okay. You inherited a business where a lot of things were in flux, and I think you inherited some challenges. But one of the things that got going, I think, before you came in as CEO was DS Core. And you see when you took over excited about the opportunity. Maybe talk to us on where that sits today. CEREC functionality, I think, was somewhat recently added to the platform. What other functionality do you want to put on DS Core over the next 12 to 24 months?

Yes, it's a great question. So DS Core, the easiest way to describe is think about building a smartphone. And so you're creating a digital environment for the dentist and that DS Core is the overarching platform. Now you need to go on and put functionality or apps on it. And so one of the first ones would be how do you do implants on core so that you go from your imaging, whether it's 3D imaging or intraoral scanner, into a diagnosis, into a plan into the execution.

I think that Ortho on Core and Endo on Core are the other two that should come. And so what we want to do is create a common platform, increase the functionality throughout and whether you're a specialist or a generalist doing multiple things, you know how to use your phone, you just change apps, that kind of ease is how we envision the ecosystem of DS Score.

And it's not so much making money on that monthly of DS Core. I mean, look, whenever you charge and it's recurring, and I think it's high margin isn't a bad thing. But is it ultimately, Dan, about getting them on core, getting them engaged and then, therefore, increasing sort of the utilization to DS Core products. I'm using DS Core for implants and then ultimately, I'm going to get higher conversion to the DS implant portfolio?

Yes. I think that's the theme. I'll go one step further. If you look at what we're doing, honestly, I'd say we're one of the only companies who's building an ecosystem from scratch so that it works together seamlessly. So all of our imaging is made by us, all of the software and drivers of that fit into DS Core, all of our implants.

So we can provide the seamless solution, not a patchwork of different companies, but one flow, which is good. It tends to have a stickiness to it. But the goal is to actually digitize the dental workflow and be a significant contributor of that throughout, whether it's capital, software or disposables.

Okay. I'm going to ask you two common questions or some of the incoming that I get, and then I'm going to sort of tick through the divisions pretty quickly. So two common questions. One, the restructuring. Maybe it's just a good time. The earnings calls are always a little bit consolidated, compressed. Maybe take a little bit of time and elaborate on what is occurring with the restructuring, $120 million in savings. Is that all being plowed back into the business? Or do some of those savings start to service in 2027?

Okay. So the restructuring is one way to free up capital to invest into the business. If you look at us, I believe that our processes are too complex. We have multiple systems. We're a collection of historic acquisitions that were never integrated. And so you have a lot of duplicate activities there in the middle of the P&L, finance, IT, HR, legal, those type of things that I think need to be streamlined down starting in '25, which we did.

And I think it will take a few years to do that. But the point is this year, and in particular, you call out, [ Jon ], the $120 million, that was freed up from those departments, mainly. And where it's going is we did a 50% increase in our clinical education, something that we really need to do because we under-index there. We've actually recreated and rebuilt our rep education, which is something, again, we track behind on and had to do.

I moved up by about 100 basis points our investment in R&D. I'd like to do a little bit more, and I want to play with that. And then the residual of that really went towards offsetting tariffs. Our prices are such that you can't just add the tariff on top. And so I used it to absorb the tariff impacts, still invest in the business. And the one I always leave out and I need to throw out is we have a great and I consider aggressive direct-to-consumer program for our Wellspect business that I funded as well this year.

These are my words and just hearing so far in the conversation that we've had. It seems like since you took over, part of this is like simplifying the business. Is that fair? You inherited some of these acquisitions were never put together, multiple divisions, multiple redundancies that you had to deal with and you want to go -- it's going to cost you some dollars initially, but you got to go ahead and sort of simplify it, strip it out and deploy capital in a better way. Is that a good assessment?

I think it is. I'll give you one change with it. I believe that the complexity we have takes your eye off of the customer and makes you focus internally to get something done. If you want to grow this company, you make the customer at the center of all you do, make it easy to do business with.

Customers will tell you they love our products, but were difficult to do business with. So change that butt and be easier to do business with common system, common approach. We'll put lean methodology in that others in dental have done very well. And we'll actually make this so that we have the resource to actually accelerate the experience of our dentists which I think then the rest of it becomes a financial exercise to take care of itself.

[indiscernible]

I choose not to do it. I don't think that would be the best business move to take prices.

I was trying to reconcile that increase price you need to take a similar months...

Yes. I don't think I would raise price for the inflation in the last couple of months. If the struggle with oil in the Middle East continue and it becomes an issue, there's an option to possibly take a surcharge on freight during that time and eliminate it later. That's not a price, that's a pass-through.

And thanks, guys. Sorry, if I missed you, just yell out and go up your hand and hopefully, I'll see you. The other common question, and then we'll get into the divisions. 1Q '26 revenue was down 6.7% or 4.5% if we normalize for the Byte headwind and the large treatment center installation from a year ago. Inventory still needs to be worked down in the channel. We alluded to the $30 million. So what are the dynamics or drivers that allow for revenue to improve to get back close to flat year-over-year by 4Q '26?

Yes. And so you and I say the same thing. I'm looking for sequential improvement so that we exit the fourth quarter flattish, not for the full year, but for that quarter. Yes, I was saying the same thing there. with that. And really, it's a couple of dynamics, the onboarding of dealers to put capital through, the introduction of bundling programs to be more holistic in how we approach the dentist, whether it be through DSOs or specialists or generalists that are out there in play.

I'm still a big believer that clinical education and a local focus of that is a great stimulator for business. And our reps have been underinvested and undertrained. And I say this openly, I look at Straumann and that's who I want my company to be like in their training of reps. It's very similar to the method we use in medical device, and it's needed here. So if I want to go drive a holistic workflow for the dentist, then my reps know how to -- need to know how to do the whole workflow. I think that's a multiyear approach.

I think that you should see improvements as we get to the second half of the year and up. But they all do have to execute. And like any program, there's risks and like any program, I have offsets, right? It's not -- everything has to work 100% perfectly, but it's not a guaranteed number either. We have to execute.

That's helpful. And it's funny. I was thinking about clinical education being a little bit more long term in nature alongside the R&D. But to your point, it should start to gain momentum as we get out to 2026.

Yes.

Okay. And let's jump into the divisions, and I'm going to actually fast forward in my talk, and I'm going to go to implants because he sort of went down this road a bit. Implants, you said you have the product portfolio.

And I think your predecessor said that as well. But what turns around the results? Or maybe asked differently, there's always been this disconnect where DS has the implant portfolio, but we haven't really seen it come through as implant market share has continued to be ceded. Is it really just the clinical education? Or are there other aspects as well?

There are other aspects. I think there's nothing significant missing from our portfolio, although I think there are some innovation that's needed to stay fresh and to close gaps. The first thing you have to do is stratify your brands. What do you want to use on that?

Now we've all created fictitious cuts of value and premium, which means nothing. But I think realistically, you need to say, what do I want to use for a generalist versus specialists? What options can I give you depending on your patient and the bone structures. And we need to articulate clearly what we have, which if you ask today a dentist or a rep, they won't be able to articulate. So we have to go fix that. That's just basic how do you stratify and go to market.

The second is we have attrited a great deal of reps and haven't replaced them at the same rate. And then again, just sharing data with you, we train our reps for a few days. Competition changes trains them for 6 weeks. We have to do better training so that our reps can actually articulate us better and represent us better. We need more reps in there as well, and I speak only implants right now when we do it. And then clinical education, as you know, is that blend between the specialists and generalists for referrals in the lab.

And we need to reengage the lab, which was walked away from about a year or 2 ago as well and create that part of that clinical education is creating that ecosystem at a local level with reps who have the education and knowledge to represent a brand that's been stratified. So there's a lot of lifting there to do. And it's a nonproduct issue. It's about a strategy and execution.

Okay. And from some of those initiatives that you have to put in place and execute on, it seems like we'll see a slow build of improvement in coming quarters as a thought and getting traction as we get into '27?

You got it. Yes. And listen, I'm going to say the other thing, right? I want to move as fast as I can to improve this business. we're not going to race to get to a number. We're going to return to a sustained health that's scalable. And I realize that there will be trade-offs and decisions. I'd like to exit the year better than I entered, but I also see improvements in '27 and '28. I'm not saying that the finish line is fourth quarter of '26. I'm saying we should see some fruits, some green shoots at that point.

Okay. Fair enough. Just going to go ahead and scan the room. EDS, Dan, it was basically flat in '24 and '25. '26 was down high single digits. And like if you think about the businesses, CTS can be sawtooth and bounce around, right, because it's capital and some lumpy capital. But that step down was somewhat surprising in the dental market that we hear is relatively stable, constant, different descriptions.

That is the business that goes through distribution. And as we were alluding to earlier, there can always be dynamics. So was there anything specific to the EDS business? Or was it -- you know what, [ Jon ], were that 1Q '26 weakness could have been more of a distribution and a timing thing? Maybe bring us up to speed on how EDS is doing.

Yes. No, I will. And to your point, I agree with you. I think that, that was an underperformance for sure. And I would say in Europe, in particular, that's where that is. And if you dig into it, there are probably about four suppliers in Europe that it would appear are winding down their stock to free up cash flow. Now remember, our dealer agreements, we have sell-through data. So they're selling the same amount for us. They're buying less. And so it would look like they're exhaling on the inventory they're carrying and being more efficient with their cash.

I haven't yet seen or felt a loss. I will tell you, I've got my eyes on that, and that's a possibility as well. The answer is not just one of all and none of the other. They're somewhere in between. But I'm not seeing it clearly as a switch out or a concern just yet as a timing. Let me keep my eyes on that. I think as we have more data, some of that will clarify itself.

Okay. And the thought being just right now because of the sell-out data that you've seen, do you think it is as a result, more likely timing.

It appears that now if we find it something else, that means we become aggressive with recapture and offers to drive that. We actually flex the muscle of the company and not just let it happen.

Okay. Okay. And maybe looking forward on EDS, can this be a growth division for DENTSPLY SIRONA in the face of an ongoing competitive environment. You hear more and more about private label, even from the company that was up here prior.

I do. I think there's innovation needed. I don't think there's a ton lacking. It's not the highest growth area by any stretch. But there are needs to have high-quality products here. And I think one of the things to watch is there are some products coming in at a lower price, especially files, and they have a higher breakage that we're discovering. And so you got to go back and understand what's best for the dentist, what's best for the customer. And while I think there's a play there in for lower products and different items, we also have to make sure that these are high-quality products. And I think one of the things we'll continue to do is provide that level of quality that's been proven over the years.

Okay. My apologies, I went into implants that I didn't round out with orthodontics. Let me go back there. And I always want to be careful trying to be an analyst who runs the business from behind a computer screen, right? But in orthodontics, does DS want to be there longer term? And when I look at the portfolio, I just struggle there, right? The company before you made the bet on Byte and obviously, that had to unwind.

You were running more clear aligners through that probably helped your gross margin to some extent, just from a volume perspective. So now Byte is out of the equation. And when you look at clear aligners through the dentist, Invisalign is the big player. Angel is the low cost. You got Spark from Envista and they bundle their wires and brackets relationship. So where do you guys fit in?

Yes. That's a great question. And it's tough to pick which businesses long term you want to be when they're all in a state of disrepair. So one of the things I want to do here is stabilize the business and then evaluate which one is more responsive and where do you want to go. We'll do what makes sense for the business and the shareholders for sure. So I'm not signaling that, gee, we may sell it or we're not going to sell it. It's -- let me go get this modernized in the software, which is really needed.

The software is out of date more than anything. We have incredible clinical data that should differentiate this, and we have to make the call, is this a business we want to invest in that will actually have growth and take share from some of the bigger ones and differentiate itself? If the answer is yes, we'll give it a try. If we say it's just we're there and there's nothing special, liquidate it, go use that cash to do something different. By the way, that's true with any of the businesses, right?

Yes. And let's say disrepair to sort of fix up a 6- or 12-month project or...

A little bit longer. If you remember, the company exited orthodontist and went direct with Byte, and they removed their entire sales force. So you have to say, do you -- is there enough power here to rebuild the sales force and the ortho relationship, modernize the software and actually gain enough share there. The answer is maybe. I think there's something unique and differentiating and we'll share with data. What we're currently evaluating is the path we want to take in that business.

Okay. Fair enough. And then maybe let's go back to CTS. And you're signing these new distribution agreements we talked earlier, how that could be a tailwind for the business. Rates have been high. We all thought they were coming down. They were until they weren't. So maybe you're working within that high rate environment going forward. Just talk to us about how much of this is transitory in that regard or is there a structural dynamic between CAD/CAM and printing that the company faces in coming years?

Well, I think it's a couple of things. I think we need to look at the capital as they move into a digital environment that allows you to create that ecosystem we discussed. I think there are customers that want to buy capital outright. There are some that may want to lease and there are some that may want to earn it out through volumes.

The trick is to have more options for the dentist to get this as opposed to just an outright sale. And so we, as a medical device, did that very well with spinal and trauma type equipment. We need to bring those programs type of bundles and volume things into this to make it more reachable. I think you need to have the capital and the software and the disposables to really provide holistic solutions for the customers.

Okay. And that's something that you'll focus on going forward within CTS.

Yes. Because it's part of DS core, and it's also part of all of your implants, whatever.

And then maybe just around the divisions, Wellspect, going really well, new products, continued innovation within the division. Your thought is what, like, look, this is core of the company. I'm going to continue to feed the beast if the division is doing well and support it going forward.

I think there's a couple of things there, right? I don't know if we ever declared ourselves pure dental and that we would never go beyond. I think there's a derisking component that allows you to look at adjacencies there. Wellspect itself is a cash generator and a high-profit business that we can actually yield and invest in dental as part of the turnaround as well.

To me, the cash can be used for stronger capital allocation. And so I see all upside with this type of thing. And it's not an asset I'm looking to sell. Of course, if we find the right deal at the right time and it makes strategic sense, we would do that. But in the past, it wasn't. I think it was a fire sale. I think that this can be significantly more profit and actually more value over the next few years, and I want to grow it.

And in terms of a cap deployment, if you see really compelling returns around that area, nothing that prevents you from pursuing that.

Again, we'll do it right. We'll deleverage with that cash and buy back shares, if that's the way. I happen to think, though, that the value that was out there versus what it could be is significantly understated versus what it will be in 5 years.

Maybe one last question or two, R&D. So when you came in and you said, "Hey, look, we're not spending enough in R&D. We're going to make a greater commitment." We started to see that take hold. That's not a 2026 thing, right, in terms of when that starts hitting the P&L. When we think about that growth rate of negative 6.7% or negative 4.5% normalized getting closer to flattish by the fourth quarter, those are the other initiatives that you talked about up here. R&D, is that sort of a payoff in '27? Is it, hey, not even until '28? How are the time line?

I think some can come in '27. So there's a couple of thoughts going out. We actually increased about $25 million this year into R&D. So it was a double-digit lift up, about 15%, 16%. And the thought was how do you actually attack DS Core applications simultaneously versus sequentially, so I can bring them all forward faster. The same is also modernizing some of our endo and preventative products type of thing, so we can do this all at once, which I think would come out in late '27 or possibly early '28, depending on FDA or other type of regulatory approvals.

What's interesting is AI is in R&D where we're the strongest right now. And we're finding that using AI for some designs and some software is potentially accelerating where we were, and we may not need as many people as planned and therefore, maybe not as much cost yet having the same speed and outcome. And so more to come with that. I'm looking at it. I'm in early days, but it's yielding fruit that's very interesting. And then I may step back and say, I need it to be 6% or 7% if I come back with a different solution to get the same for less.

Okay. Maybe one last one for me because we already kicked around capital deployment a little bit. The DSO strategy, and it's a question that I asked you in one of your early earnings calls is perplexing, right? Like DENTSPLY SIRONA has such a robust portfolio, so diversified across the spectrum, you can bundle, you would seem like a great one-stop shop and really leverage it for DSOs. So maybe the first part of the question is what's prevented DENTSPLY SIRONA being successful in the past?

Yes. And I don't know if I have an answer for why they haven't pursued that in the past. I will tell you that the conversations I am having with DSOs, there's an interest in this. There's a common theme though of do you have enough reps to cover me? Are they educated enough?

We support clinical education, right? And so yes, my answer is yes, we're doing that right now. Can I offer you a bundle no one else can? Yes, I actually believe I can and we should. And so I'm actually very interested in pursuing that. I'm not sure that would bear fruit this year. But I think proving that we're going to put our money where it's needed in innovation and commercial will bring DSOs in. And I think creating creative bundles and pricing for them is a way that we can enter into it. And so just beginning that process with my new U.S. team, in particular, Europe kind of won't quite be as big, but following behind that right now.

That's interesting. So it's going to some of these potential partners as DSOs and showing that you're going to be a good partner. You're investing in clinical education, you're investing in R&D, you're going to have new products. And then that's a great reason why you want to go ahead and be with DENTSPLY SIRONA.

Right. And we can fill out your entire suite with every single thing you need in that from chairs, tools, everything we have, so we can be a one-stop shop, like you said, in addition to all of the items and verticals we discussed.

Okay. Fantastic. Guys, any last minute questions? Dan, thanks very much for your time.

Great. Thank you. Thank you.

Appreciate it.

Good day, and thank you for standing by. Welcome to the Q1 2026 DENTSPLY SIRONA 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. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the DENTSPLY SIRONA First Quarter 2026 Earnings Call. Joining me for today's call are Dan Scavilla, President and Chief Executive Officer; and Mike Pomeroy, Interim 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 enhanced 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. Q1 marked the start of executing the DENTSPLY SIRONA Return-to-Growth action plan. Our results reflect the business and transition and do not yet capture the actions underway intended to drive sustained profitable growth. We are strengthening execution, investing in key growth areas and positioning the company for improved long-term performance.

From my perspective, we are where we expected to be at this early stage. We are executing the plan as intended and remain focused on improving speed and accountability. As I said last quarter, we're going deeper, moving faster and being bolder to improve our business while placing the customer at the center of all we do. That mindset is taking hold across the organization. While near-term performance is still being affected by external pressures and the timing of our investments, the underlying market remains stable. We're monitoring geopolitical and macro factors closely, while making strong progress on the areas within our control.

Regardless of market conditions, we will remain focused on executing our plan and improving our performance over time. We're engaging with our customers more accelerating innovation and optimizing our cost structure. These actions are already gaining momentum and are expected to contribute more meaningfully as the year progresses.

During the quarter, we advanced our commercial restructuring in the U.S., expanded clinical education and sales force training, and continue to drive innovation across the portfolio while implementing a restructuring to redirect funds to fuel commercial and innovation growth. We're also seeing early encouraging traction with our distribution partners, and I'll share more detail on that shortly. We remain confident in our strategy and are maintaining our full year 2026 outlook.

On today's call, Mike will review our first quarter '26 financial performance and key drivers. I will then provide an update on our strategic progress, including the actions we are taking to support the 5 pillars of our Return-to-Growth action plan.

With that, I'll turn the call over to Mike.

Thanks a lot, Dan, and good afternoon, and thank you all for joining us. As Dan noted, first quarter results are in line with what we anticipated at this stage as we execute on our plan to continuously lean down our OpEx structure and drive sustained profitable growth. Before we begin, we announced today a change to external reporting for our regions from U.S., Europe and Rest of World to Americas, EMEA and APAC. This update creates a more efficient reporting structure and better reflects how we manage and evaluate the business internally. The results being reported today reflect this change. A recast to prior comparative regional information has been provided along with today's press release.

Let's move to Q1 results on Slide 4. Our first quarter revenue was $880 million, representing an as-reported sales increase of 0.1% over the prior quarter. On a constant currency basis, sales declined 6.7% based in part from the impact from Byte and a strong Q1 2025 treatment center sales not repeated in 2026. Adjusting for these onetime headwinds, Q1 2026 sales on a constant currency basis were down 4.5%. On a constant currency basis, sales highlighted in the quarter included double-digit growth for EDS and APAC, favorable SureSmile performance in EMEA and growth in Wellspect Healthcare. These improvements were offset by declines in EDS outside of APAC, CTS and OIS.

Adjusted EBITDA margins declined 430 basis points, resulting from a 560 basis points decline in gross profit, driven by lower volumes, sales mix and tariff impacts. While OpEx experienced a headwind on an as-reported basis, from a constant currency perspective, OpEx was down $20 million, reflecting benefits from our Return-to-Growth, OpEx restructuring and overall cost control management. In line with that, we communicated in our last earnings call, we increased our spend in R&D year-over-year as we support the Return-to-Growth action plan and invest in bringing innovation to market.

Adjusted EPS in the quarter was $0.27. In the first quarter, operating cash flow was $40 million compared to $7 million in the prior year quarter. The year-over-year increase is primarily attributable to improvements in working capital with lower accounts receivable. This is an early sign of progress as we focus on improving working capital over the balance of the year.

We finished the quarter with cash and cash equivalents of $190 million. Our Q1 net debt-to-EBITDA ratio was 3.3x. During the quarter, we retired $79 million of debt. We continue to prioritize debt reduction over time and remain committed to maintaining investment-grade credit metrics.

Let's now turn to the first quarter segment performance on Slide 5. Starting with CTS segment. Constant currency sales declined 2.9%. We saw a high single-digit decline in E&I as declines in imaging equipment and treatment centers were driven by a tougher comp versus the prior year quarter. When adjusting out of the onetime institutional installation, CTS was flat in constant currency.

Our global CAD/CAM business was flat year-over-year with growth in APAC offset by a decline in EMEA, which was driven by softness in the Middle East and Central Europe, partially offset by double-digit growth in U.K., Spain, Turkey and Denmark. We saw increased demand from mills in the U.S. along with bright spots in APAC. Overall, U.S. distributor levels for CAD/CAM and imaging products remain below historical averages, a trend we expect to continue.

Turning to EDS, which includes endo, resto and preventative products. Sales on a constant currency basis declined 7.2%, driven by lower volumes in Americas and EMEA partially offset by growth across all 3 product categories in APAC.

Moving to OIS. Sales in constant currency declined 13.5% when adjusting for year-over-year impact from Byte, OIS declined 7.6%. IPS declined high single digits in the quarter driven by lower impact volume across all 3 regions. SureSmile, our clear aligner offering, declined low single digits in the quarter with a high single-digit decline in the U.S. partially offset by 11% growth in EMEA.

Wrapping up with the Wellspect Healthcare, constant currency sales increased 3.4% and led by 4% growth in EMEA and the continued strength of new product sales and execution of the business.

Now let's move to Slide 6 to discuss our outlook for 2026. As Dan shared earlier, we are maintaining our 2026 outlook for net sales of $3.5 billion to $3.6 billion, and an adjusted EPS in the range of $1.40 to $1.50. With the uncertainty and fluidity of the current macro and geopolitical environment, we are applying a thoughtful risk-aware approach to our guidance while remaining focused on executing initiatives to drive sustainable growth.

With that, I will turn the call back to Dan.

Thanks, Mike. As I mentioned in my opening comments, our focus remains on disciplined execution, and we're making progress against our plan. The management team and Board are closely aligned, priorities are clear and the organization is engaged and motivated. I also want to recognize the strength of our leadership team, particularly our U.S. commercial leaders, several competitive hires joined recently who bring deep dental experience and are already making meaningful impact. While it's still early, what we're seeing gives me continued confidence that we're on the right path.

My leadership team and I have been spending more time in the field and at local customer events, deeming valuable firsthand perspectives. Customers are noticing a shift in how we show up. Most importantly, we're consistently putting the customer at the center of our decisions and actions with a clear focus on improving both the experience and outcome for the dental practitioners we serve.

We are in the early stages of expanding our clinical education and sales force training programs with increasing structure and scalability. Early feedback is encouraging, and the teams are responding well to granularity, investments in their development and increased accountability. This work is strengthening our foundation as we prepare for more consistent execution in the second half of the year.

At the same time, we're strengthening our processes to ensure solutions are grounded in real-world customer needs. As part of this effort, we're establishing a CEO Advisory Board comprised of dentists to provide direct and ongoing customer insights.

Returning the U.S. to growth remains our top 3. The actions we are taking to strengthen talent, execution, expand distribution and improve customer engagement are beginning to show early traction. At the same time, we're reinforcing the key drivers of our long-term growth. A central priority is sharpening our focus on the implant business, while recent performance in this segment has been challenging. We continue to benefit from strong underlying assets and a deep -- in space.

To build on this foundation, we initiated a disciplined set of actions to improve performance and position the business for sustainable growth. I'll provide more detailed updates on future earnings calls.

Innovation also remains central, supported by increased R&D investment with a clear focus on our highest value opportunities. Let me share a few of our recent launches as seen on Slide 7 in the earnings presentation.

We just announced the launch of Smart View-Detect, the first FDA-cleared and CE-marked, IA-enabled diagnostic aid that automatically identifies potential inflammation at the route tip in 3D scans. Integrating into DTS core platform, the solution works with both new and existing systems, enabling seamless adoption. In clinical evaluation, Smart View-Detect increased detection sensitivity by approximately 46% relative to unaided review, helping reduce the risk of overlooked findings while improving workflow efficiency. This innovation not only enhances diagnostic confidence but also supports clearer patient communication, reinforcing our commitment to advancing connected high-quality dental care.

In endodontics, we introduced the Reciproc Minima file system and the X-Smart Go cordless endo motor, both designed to simplify workflows and improve efficiency. Reciproc Minima enables treatment of narrow and complex canals with a one file approach, while X-Smart Go enhances mobility and performance through cordless operation and integrated intelligence. Together, these solutions reflect our focus on practical evidence-based innovation.

In imaging, we announced FDA clearance of our dental dedicated MRI, representing an important step forward in expanding our capabilities in soft tissue diagnostics. The system has been validated in clinical setting and is expected to support broader collaboration with leading academic and research institutions, consistent with our strategy to build clinical evidence and drive adoption. It also complements our existing imaging portfolio.

Beyond dental, Wellspect continues to show solid momentum. Adoption of Surity for females is expanding, supported by ease-of-use, discretion, patient comfort and with encouraging feedback from both patients and clinicians. Building on this, the recent launch of the male version extends the portfolio of our patient population.

Finally, we're making progress in expanding and strengthening our U.S. distribution network. As announced yesterday today, we signed an expanded agreement with Atlanta Dental Supply, adding our connected technology solutions portfolio effective August 1. This marks our fourth new distributor agreement this year and enhances our regional coverage, improving access and service levels in an important market. The other distribution agreements announced in the first quarter are beginning to build action and expand our commercial reach.

Early traction includes Benco installing its first CEREC system under the new agreement, an important milestone achieved ahead of schedule. To leave DENTSPLY SIRONA into its next phase, we're strengthening our foundation with better tools more integrated systems and increased automation. This builds on the strength of our existing teams while enhancing capabilities in transformation, operations and financial performance.

Our transformation -- continues to drive execution of the Return-to-Growth action plan with a focus on embedding lean operating principles, simplifying processes and improving how work gets done across the organization through the customers' lens. In parallel, we're advancing our enterprise AI strategy to drive efficiency and support innovation across both commercial and operational areas.

In Q1, we began deploying AI-enabled tools and select workflows to improve productivity with broader rollout plan throughout the year. Within finance, we're strengthening capabilities while maintaining continuity as we actively progress on our search for a permanent CFO. Mike continues to be a strong partner in this interim role, ensuring stability and focus on execution.

We're supplying and optimizing the operating model to improve efficiency and scalability. The restructuring program remains on track to deliver approximately $120 million in annual savings with benefits building through 2026 and becoming more meaningful in the second half of the year. Key actions include cost optimization, organizational simplification and supply chain efficiencies, along with reducing complexity across legal entities and IT systems. Through these actions and by driving lean principles further into the organization, we will improve our speed, competitiveness and the customer experience.

Early proof points are visible, including a reduction of approximately $20 million in operating expenses during the first quarter. These savings are being reinvested into growth areas such as R&D, clinical education and commercial capabilities while we continue to manage external headwinds. A disciplined approach to capital allocation and balance sheet management remains a priority. During the quarter, we reduced debt by approximately $80 million, reflecting our commitment to deleveraging. Capital allocation priorities remain focused on debt reduction and share repurchases, supported by improving working capital and free cash flow. With the dividend eliminated during the first quarter, we have increased flexibility in how we deploy capital. And as performance improves, we expect to be in a position to evaluate the timing of share repurchases later this year.

In closing, progress is encouraging, execution is improving, cost discipline is in place and we're building the capabilities needed to drive sustainable growth. Early proof points are emerging across the business. Visibility should continue to improve as the year progresses, particularly in the second half. We remain confident in the strategy and focused on delivering long-term value for the shareholders. I believe the potential of DENTSPLY SIRONA has never been greater, and we have at our fingertips everything we need to achieve this. Thank you.

Now let's turn to Q&A.

[Operator Instructions] Our first question comes from the line of Allen Lutz of Bank of America.

Thanks for all the details, Dan. Well, on the Return-to-Growth action plan, there's a lot of good steps there. You talked about new distribution relationships and expanding ones you've already had investing in clinical education and then new product investments. So there's a lot of things on the plate. How do you think about the timing of the benefits? I think in the topic call, you alluded to maybe some benefits happening towards the second half of the year. But as we think about all those things that you're spending time on or that you've done so far, is this something where we should start to expect more material benefit in the back half of this year? Or is this effectively more of a 2- or 3-year road map. Would love if you could just give us a sense of how you're thinking strategically about the timing of some of these investments you're making in that Return to Growth plan.

Thanks, Allen. I appreciate the question. And I think you kind of answered it, right? So when we first rolled out the Return-to-Growth plan, we called it a 24-month plan, recognizing that you can't move fast enough, but at the same time, can't change this in the speed that all of us would wish. So really, Q1 was really the beginning of this, where we established the '26 plan, built the teams did all the reorganization, and this is really us allocating the first quarter.

What we're talking about, in particular, is as we begin some of the restructuring that's occurring in the first, second quarter, you'll see some of those cost benefits come through more in the fourth quarter than you would in the first half of the year. But as you look at the commercial cadence and what we plan to drive, again, I would think we should begin to see some things in the fourth quarter, but I really do believe that more of the improvements will be seen as we get into '27 and certainly into '28.

I appreciate all the color there. And then would love to hear an update on some of your early conversations with DSOs. Where was your portfolio is the most interest? And how can XRAY best help DSOs?

Yes. Again, great question. And there's a lot of great activity that is currently occurring with DSOs. It's something we had begun into the last quarter of last year. with this. And again, if you look at who we are and what we offer, you have this incredible strength of a broad portfolio, whether you want to actually build out new dental suites and we can actually provide all of that activity there. Where you want to get into longer planned for consumables and pull-throughs. Again, we can do that as well. So we're really talking with several concurrently. And we're looking to have a more active plan, again, more towards the second half of this year and into next year. But I think the strength is in the broad offering we can give them as a one-stop shop and therefore, bring all of the leverage bundling together for the best impact for them and ease of them with us.

Our next question comes from the line of Jon Block at Stifel.

And maybe just the first one, I'd say the trends with the consumer are certainly a concern with the geopolitical backdrop. And you guys are so global in nature that I figured I take the opportunity when you look across your book of business, anything to call out between Americas and EMEA and APAC, when we think about March or April trends whether that be weakening or maybe even something to call out in terms of more resilience than maybe you expected considering what's going on in the world?

Well, again, great question, Jon, and there's certainly a lot of moving parts here in we did not really call out Middle East. We'll keep our eyes on that. It is a small or lower single-digit impact for us right now. And so I think we'll keep focused with that. the continued struggle in Central Europe with Russia. It certainly has its weight. It's something that we've built into our forecast. So as of now, we stay with what we've planned in our initial business plan. And should we see some of these risks changing or shifting we'll take more action after we get through the second quarter.

Okay. Fair enough. And maybe just the second question and maybe wanted to have questions here. Can you talk to us where you are with the drop ship model with the distributors? You talked to more distributors coming on board, but what more needs to be done there? Maybe if you want to talk to the receptivity, I mean I think for them, it's not tying up their cash. And if you feel like it is giving you a greater voice with the distributors.

And then in Italy, like a completely unrelated question would just be the case throughout the year. How do we think about the exit EBITDA margin, which might in 4Q, which might help us bridge from 1Q to 4Q?

No problem. So I'll put a couple of things out there. So the transition into the new capital model really applies to some of the existing dealers, not necessarily new ones. Now we'll provide this for everybody. But when we talk about the inventory build or the change in inventory that you're referring to, that's a little more of a [ Patterson ] to shine than all of the new players who would start at 0 anyway. The first quarter did not include any of that burn through of the inventory. We expect to see that from Q2 through Q4 with those type items. It is well received. It's built into all of our agreements. It's honestly not a negotiating point, with us because the benefits are for both sides and pretty easily accepted that way.

Refrain right now from either Mike or I given you what we think Q4 guidance is is not something we do. We want to get a couple of quarters under our belt with all of the moving parts we have and then really help you determine what's the best way to set up your '27 model.

Our next question comes from the line of Jeff Johnson with RW Baird.

So Dan, I wanted to start, the Wellspect business, I thought showed through very consistently and nicely this quarter. OIS and CTS, we know there's a lot of moving parts there. On the EDS side, I think that was probably the biggest surprise to me from a segment performance, just the down 7%, the comp, that a little bit tougher, but the switch from plus 2% to minus 7% this quarter, what I might have my numbers, plus 4% to minus 7% this quarter. What was that 11-point shift? The markets seem like they've held in fairly consistently. What was the underlying driver of that falloff.

Yes. What I would tell you right now, as I agree with you, we looked at a little bit of softness in the fourth quarter. We saw that carry into the first quarter. I do trace that down to specific markets. I won't call them out right now. And while we believe some of it is destocking of dealers, especially those that may have gone into a little more PE-based thing we're actually working through the program for a better understanding of where that is.

So right now, it really looks like there was a bigger shift in Europe than we would have anticipated. U.S. is kind of in line where we thought and even within Europe, there's probably about 5 different markets that we're taking a look at in a certain area to understand what's being driven there for a better thing. But our current estimates and our current assumptions are there is some continued destocking that we felt fourth quarter, I think we were in the first quarter.

Again, as you noticed, we haven't called off of our number. We think that this is a timing issue as we stand today. but we'll look to see how we can prove that true.

Yes. Understood. And then maybe as my follow-up question, just -- you mentioned again tonight returning that U.S. to growth by maybe later this year. Europe is actually a bigger segment for you guys geographically maybe the consumables thing, the EDS thing you were just referencing there, drove that European number down, to down 5.6% this. As you focus on the U.S., I would assume you also plan or hope or working towards getting that European number consistently to growth as well. I think historically it has been. Maybe it's just this quarter, but I don't see the restatements on the new segments yet on your side. So just help me understand kind of how you're thinking about Europe over the next few quarters and eventually getting that Return to Growth as well.

Yes. No, it's no problem. And you kind of answered it with your question, right? Of course, we want Europe to get back into growth. It's a foundation. The U.S. stays on track. We're happy with that. Again, this European one. It's really two factors. You talked about EDS, which I'd agree with Keep in mind, too, that the treatment centers are fairly large last year as well. And so as Mike calls us out, you want to make sure we stand -- that's an academic type thing where they come and blips not really something you can easily forecast and see.

So I want to make sure we don't overstate the change because of that onetime headwind that we're looking at therein. But of course, a strong Europe and Asia Pac are needed as well as the continued growth in the Americas. And we're focusing on it. I think the real message is not just detracting us or taking us off task by any stretch. And the vast majority of what we're doing to return U.S. to growth is applicable throughout the world.

Our next question comes from the line of Michael Sarcone of Jefferies.

I just wanted to start on gross margin. You talked about 550 basis points of contraction. Maybe you can just give us a little more color on on what's driving those and the move in 1Q? And then how we should think about the cadence of gross margin through the year?

Yes. A big piece of the headwind in gross margin is tariffs when you're looking year-on-year, tariffs don't exist to the extent they do now. So that's a pretty big piece. We talked about EDS, Dan just did. EDS is our most profitable segment. So we're experiencing negative mix as far as that goes. And then we also have -- there was a volume absorption situation in Q4 of 2025, which comes off the balance sheet, it's inventoriable, therefore, capitalized. And that was a negative hit as well.

I mean as far as going forward, everybody knows what's happening with tariffs, we'll start seeing the adjustments from the [ SCOTUS ] decision and then down to the Trump 10% in Q2. So that piece is going to look a lot better. Dan talked about what we're working on as far as Europe getting the destocking behind us, which we believe it is.

And the third piece is tariffs down the road that there's another piece there. But just your apples-to-apples, I would think we should be gaining 300 basis points at a minimum back in the Q2, Q3 time frame.

Okay. That's helpful. And then the question just about macro and geopolitics was asked from a consumer demand standpoint. But could you talk about what you're seeing in terms of input costs as it relates to higher oil prices and freight prices.

And you're kind of breaking up there. So I think I'm going to answer it. I think you're asking if we're seeing some headwinds with freight to oil, some of those natural things that are occurring because of that. And I would -- the answer is yes, we are, and we'll continue to monitor that and understand if it's something we can offset, absorb change or have to adjust. But again, I want more than one quarter under the belt before we make that decision.

Our next question comes from the line of Jason Bednar from PSC.

This is [ Joe ] on for Jason. Starting on consumables more broadly. We're seeing a continued mix shift towards private label. And I guess, strategically, curious how you're thinking about navigating the shift you read that the private label trend so as runway? Or is it sort of the plateau in the current environment at all?

Yes, I think it's a fair question. And private label is something that has been around and will continue to be around. It's something that we'll obviously look at and where it makes sense to compete against. We do have several programs in development to actually make this a meaningful and worthwhile approach with customers. I'm not going to lay that out just yet because it's for competitive reasons, I want to get them launched before we actually discuss them out there.

But then to your point, something that has our attention certainly and the need for us to penetrate the market with more creative ways to get our products into the hands of the dentists.

And then one more just to push a little bit more on kind of pricing with input costs here. Do you feel you have incremental ability to pass through price to offset these pressures? And I guess just like what's your appetite here throughout the year? And what might be included in the guide for pricing versus how much more you could possibly take?

Yes. It's a fair question. We had initially last year taking some minor pricing on more of the capital than anything like that. Our intent is not to change that right now. And I don't see anywhere where we would benefit from price increases of any significance. So I think right now, it's really about us staying focused on return to growth and actually executing in a way that is beneficial to the customer back to our growth. I don't think there's a price play of any significance that would really get us where we need to get to.

Our next question comes from the line of Elizabeth Anderson with Evercore ISI.

Given sort of the R&D spending in the quarter and your focus on new products or contribution in the quarter and sort of how you're seeing that progress over the course of the rest of the year and maybe into 2027?

Yes. Thanks -- now we don't actually disclose that level of detail. We do monitor it, and it's something that our eye on. And to be honest with you, what I'll hint to you is, while we do have the metrics, I need to see them improve for our investment in R&D, and I think there's an execution plan that should allow us to do that, but our assumptions are for this year or next.

But would you agree that it's sort of a ramping contribution as we go across the year into next year, we should think of that really starting to step up maybe like '27, '28 kind of time frame.

I would agree with that.

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

I know you've touched on a lot of the different I just want to dive in, I guess, a bit on implants. As you think about the next couple of years of go to market, where do you think you are in your combination of product reboot sales reboot and how to factor that into the -- that component contributing to the Return-to-Growth opportunity?

Yes. It's a fantastic question. I would tell you that while we talk about geographically focusing on the U.S. as a return to health is a priority, which it is, therein is a couple of priorities, of which implants is one of the top ones. And again, I've commissioned a team of dental KOLs to work with us and get the voice of customer. I'm really working on several different approaches here with team to come back with a little bit more holistic programs. I want to get them formed and launched before I speak about them. But I would just tell you that implants is an area of our focus. We are not happy with our performance to date. We recognize we have some of the best offerings in the market. And we simply need to execute in a better way and utilize those assets in a stronger way.

And just one quick additional question relative to your comments on the call about the buyback. As you think about the evaluation at the end of the year. I guess, what are the moving pieces that are going to impact your decision on a go/no-go valuation

Yes, not many, to be honest with you. I think there's an opportunity here by moving the dividend and redeploying it out. We had had some near-term debt that was coming due. It made sense to retire. I just wanted to put the funds there first because it will help us deleverage especially in EBITDA gets stronger. And it just didn't make sense to carry them forward. So that was really the thing.

I think in the second half of the year, looking at the option to remove stock and to be honest with you, at this price, I'm anxious to do it because I think it's going to be a great one to remove, and so all I'm saying is I'm going to get the debt in line first. I want to preserve our credit ratings the way they are. And then I want to move into removing not only in the second half of the year, but ongoing thereafter.

Our next question comes from the line of Lily Lozada at JPMorgan.

Maybe I'll just start with guidance. You beat by quite a bit on the top line on a reported basis, but reiterated the guide I appreciate it's still early, but what's the thinking behind that? Why not flow through the beat? And are there any offsetting dynamics 2Q through 4Q that should be keeping in mind?

Lily, it's a great question. And just to be honest with you, it's my style that I'm just bringing into DENTSPLY SIRONA. I did the same thing back in Globus. I'm not going to make a call after one quarter. I'd like to see at least two before we do. So regardless of thing, I wouldn't have brought it up or down. It's not a concern. It's just more of a style of what I do. I'd rather be appropriately conservative than anything else right now. That's all it reflects.

Got it. Makes sense. And then I was hoping you could dig into CTS a little bit more. That came in nicely higher than what we were thinking. So can you talk a bit more about what drove that strength? And just generally, what you're seeing in terms of appetite for capital in this environment?

Yes. No, you're welcome. Listen, right now, there's a lot of moving parts there in. I would tell you that having expanded the dealers and actually working on programs with them, we called out through make scripts. We're seeing some strength in the U.S. again, 1 quarter doesn't make a trend. And so we just acknowledge that it's there. We'll continue to execute. And after a couple of quarters, we can see how that's raising up. But the CTS strength, I would attribute more to activity occurring in the U.S. through our to our partners.

Our next question comes from the line of Kevin Caliendo at UBS.

Dan, I appreciate the lift that you have here operationally and all the things that you've initiated internally. And when you think about the growth initiatives, I'm just wondering in your mind, what segments or what geographies do you think catch up or get to be growing faster than market, what products do you think you can get to quickest -- just trying to gauge where your sort of head is around the expectations around what the growth can actually look like, can DENTSPLY again grow faster than the market grow in line in the market in implants or something to that effect. And I'm just trying to gauge where you think you can be and sort of when in certain product lines? Like what are you most excited about? Or where do you think you can return to the sort of market growth or presumably better than market growth and what segment is fastest.

Yes. And again, I'll refrain from giving segment-by-segment growth expectations, something we have been working on, and there will be an Investor Day somewhere probably coming up towards the end of this year, beginning of next. And we'll do that along with the strat plan. I believe that this organization with right structure and the right focus can grow at or above market over time. And we need to work our way through that in '26 and into '27, but that is certainly the target. And you say, well, how and where will you begin with the U.S. has to return because that's just its size. Within that, through the actions we've already taken with dealers, it's got to be about the right placement of capital in order to have those activities.

As we spoke about with other folks, it has to be, in my mind, implant focused, endo focused or EDS focus, excuse me. And at the same time, with our enhanced R&D we need to make a better or a deeper penetration into the ortho market. So all of those are in play. I want to get them functioning first before I come out and commit to anything in particular, but I would say among those combined with those we should be at or above market as we get into a healthy cadence.

And just a quick follow-up to all that, if you're talking about capital deployment, you're talking about share buybacks. And presumably with everything that's going on here, there isn't likely a focus on M&A. But if there was right? You look at the product portfolios that you have either in Wellspect or in dental, is there an area that you think that, hey, a tuck-in M&A acquisition or even something more material might enhance the product portfolio, be more synergistic or needed.

I do. I don't think there's anything needed. Let me start there. And I am looking at M&A because even if we decide not to do it over the next few quarters, we are going to go back to that and sustain current is a plan that we have in place already. We've actually established an independent board with Wellspect, and we'll announce that out as we get the finalization of these people. And it is going to be a focus on hyper growth within Wellspect so that we drive way above market and penetrate deeper. Should we find adjacencies there in that are bolt-on or can be fast in closing out the gap. That would be one area of interest to me.

So in the non-dental area. We have several conversations currently with longer-term potential within dental, but I actually want to refrain from talking about them specifically right now. What I'm obviously looking for is an accelerated way to differentiate ourselves in certain areas. Some of it would be CTS just for the fact of helping penetration. But as far as products themselves, meaning implantables or those things, there really isn't anything we're chasing down at this time or have interest in.

Our next question comes from the line of Steven Valiquette at Mizuho Securities.

So I guess for us, we heard just one of the global dental distributors today talk about some lower industry pricing trends on scanners or other digital equipment, primarily from newer market entrants in 1Q. So I'm curious if you can discuss kind of what you're seeing on the competitive landscape front in [ iOS ] and what this might mean for Primescan or maybe some of your other offerings?

Yes. Well, I think your data is correct. I think there are new entrants at low cost. I think there's different plans to address that. what we have to look at is our current model versus what could be market appropriate in this changing dynamic. And that's where our size and the breadth of portfolio come into play.

And so we're doing a few things, right? One of them is obviously looking to become more competitive in that area. And with that, it's probably going to be from more structured programs that we do that not only have a scanner, but the pull-through effect of it, some things that some of the lower costs won't be able to compete with, without bundling up. And so we're going to use our portfolio in a bundled strategy that will allow us to actually accelerate some of the penetration we're seeing as a way to be more market appropriate today.

Our next question comes from the line of Erin Wright at Morgan Stanley.

So you highlighted in the deck as well as your prepared remarks a lot on innovation in terms of specific products and areas of focus. I get it, you're not going to give us like an innovation contribution yet, but what could really move the needle? Would you call out a couple of those that would be significant that we should pay attention to kind of going forward from an innovation perspective?

Yes. Thanks. Obviously, speaking only of the ones that we discussed on the call versus what has been approved yet or what we haven't launched. I actually like the AI detection as a way to further enhance the DS Core offering to our current and even future customers. That one is one that excites me. Listen, I've been a fan of Wellspect, and I see the potential of this business. And so the Surity is a launch into an entirely new area for them and into new geographic markets. So both of those are things that are exciting for me.

I think the MRI is a much longer and a little more clinical long-term play. I don't see that as a large revenue generator over time, but rather something that will lead out to future products or future approaches that I think can be very interesting. And listen, I think the Reciproc Minima using one file is a great approach that can actually not only reduce cost to our users and speed up time but have what appears to be great outcomes for the patients. And so through this, I like them all. I think they all have potential to move us forward.

Okay. Great. And I don't want to belabor the macro topic in fuel cost and input cost, but I just wanted to clarify, you did say you're seeing an impact now. Can you if that at all? Like is it material right now? And just remind us, so you don't have anything embedded in your guidance right now as it relates to that? Or you just think you can mitigate it? Or what is -- why not make any changes on that front, just to be conservative on that front now?

Yes. Look, I'll make it really simple, it. We're obviously not going to disclose very specifics here that we don't do. And what I'm trading is freedom to move here is if we see escalation or unforeseen things that are not there today, obviously, we would have to react and share with you adjustments, whether we can absorb them or not. And that's really all that statement is. There's nothing that has occurred today that is material. Otherwise, we would have disclosed it. But again, we don't know in this changing world what tomorrow is. So I'm simply reserving the right to say, should that change, we will probably need to come back and update your assumptions.

Our next question comes from the line of Daniel Grosslight at Citi.

I want to go back to implant volumes. You mentioned that across all regions, implant volumes were a little bit lower than expected. And curious if you can kind of bifurcate between premium and value demand realizing that the significant majority of your portfolio is premium. And if there's any significant differentiation you're seeing by region? And you kind of alluded to this in your prepared remarks, but was hoping you could provide a little bit more detail on the strategy to stem some of that lower demand and the timing of those benefits.

Yes. So a couple of things, we are down with both value and premium for the quarter. I would tell you, when I look at what we call value, which is MIS in particular, it is simply underutilized. And so back to your point, what I would do to stem that is actually positioned that differently as a brand that can really drive something that I feel has been not fully implemented by the company. It's something that we're working on currently. I think [ Astra ] is still on the best products out there. And so the clinical education, the rep education are all parts of that, that I mentioned last quarter to go at that and drive those things in particular.

I feel implants is more of an execution than a lacking product or being other products over competing us. So I think we've got the right portfolio. I think we have to improve the education to do the right execution. And while we will have certainly a market broader competitive forming in the second quarter, I'm going to refrain from those now until we get to implement it.

Okay. Great. And a follow-up, you -- last quarter, you guided to a $30 million headwind in the first half of this year due to the inventory sell-through under the new drop-ship model. How much of that was realized this quarter. And I don't know if you can quantify on a basis point basis, how it impacted gross margins?

Yes. None of it was realized this quarter. It still is in our line of sight to happen with the previous guidance we gave, but it's going to be more of a late Q2 and then second half where we'll see that impact.

Our next question comes from the line of Brandon Vasquez at William Blair.

Great. Thanks for the question. Dan, maybe I can ask a little bit of the portfolio question with the opposite side as you're in the seat another quarter here. As you're looking at the portfolio, is there anything you think that maybe DENTSPLY isn't the right home for anything you think on the rationalization side that might help improve the P&L to some degree?

Yes. Great question, Brandon. My answer is no, not yet. I really want to see how the market responds to our growth plan. I want to take a look at these from a different light. I don't like the position we're currently in right now, and so I want to stabilize and get them growing.

Another thing at that point, we say what makes sense or not. One of the things we did announce, I believe, last quarter was the creation of the Growth and Value Committee. And with that, I have the Board looking with me to not only look at potential M&A, but also doesn't make sense for something to be set up as a divestiture. My ask of them, and right now, everybody is, I still want to get through the execution phase of this before we take an evaluation of where that makes sense. Not afraid to do it, just don't really have the right facts or positioning to do that in what I think is the best interest of all of us.

Okay. Makes sense. And as a follow-up, within CTS and EDS, APAC was actually -- if I recall correctly, highlighted as an area of strength, while there are some other pockets of weakness. I was curious if you could just spend a minute on APAC, why things are doing relatively well there for this portfolio compared to the other reasons.

No, I appreciate that as well. I'd put it out to is simply the leadership and structure that are out in EMEA are strong. And we really have some of the greatest people in there. They are well educated. They actually spend well on clinical education. So everything I'm saying I'm bringing into the U.S. I don't want to say exist fully in the EMEA, but we started out in the EMEA, and I think that's one of the drivers that's going on that way.

With Asia Pac as well, we're looking at doing a similar thing. I know I don't want to speak a lot about them, and that's more of a long-term investment growth. But I think that, again, I'd point out the EMEA strength really based on the execution of the team with a good plan and one that we can learn from and spread throughout the world.

Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning, everyone. Thanks for joining us for this session of the Leerink Partners Global Healthcare Conference. I'm Mike Cherny, the Health Care Tech Distribution Analyst here. It's my pleasure to have with us Dan Scavilla from Dentsply Sirona, along with Wade Moody, who heads up the IR function. I am pleased that Wade didn't decide to put any slides together because I got questions to keep us about for the next half hour.

All right.

Dan, we were talking a little bit before, and one of the things I said I admired is your bluntness. You came in as CEO, and you're very direct with us about your thought process on the business and the focus on what you've termed the return to growth opportunity. How are you tracking yourself and for the organization, the quarter-by-quarter progress?

I mean, I know it's not quarter-quarter for us, week by week for sure for you. And what is the investment community should we be looking for in terms of the most important mileposts on the progress that you want to make sure you're hitting?

Yes, Mike, great question. And it's funny, I see you more day by day, right? As you kind of look at this with an urgency. And the reason for that, too, is just we have to drive urgency with the company, with the mindset.

And so your question more on -- from the investor side looking in a little bit tougher because there is a lot of moving parts that you wouldn't necessarily see. I got to think about coming up with some metrics maybe that we call out without repercussion, right?

So one of the first things is obviously, when we talked about engaging and expanding dealers, and we announced that we've done that. We'll continue to do that. And I think that's one of the first triggers of theoretically, as you get through that learning curve of the dealer reps, they build a portfolio, they start having a pipeline, you would think that, that would be a return to health in the U.S. for the CTS business, right?

Now you got to pivot over into implants, and that's really where the clinical and the rep and the strategy come into play that an investor may not see. What I might try and do is figure out how to metric out the amount of clinical education we're doing maybe year-on-year as a volume lift.

But that one, even if you spend heavy Q2, Q3, I think that's a lagging lift that you see maybe in the next quarter or the next year. And so what I'll do is I'll announce where we're spending money and where we're investing. But to me, it's over the long term, the true measure is the lift in sales, the slowdown of loss into a positive. I think that's the ultimate tell.

And I'm glad you started with the dealer dynamic because I think that's an important thing that times gets lost is that you still have a really large portfolio wide swath of products that's available and interesting both for the dealer side as well as your direct side. As you think about your engagement on the dealer front as part of the strategic push, what have been some of the puts and takes?

And how have you gone about creating not just renewed contracts, but actually new arrangements so that it's a win-win for both sides?

Right. So the great news with that is just it seemed like all of us happen to be new at the same time. So while you may have had a struggle in the past relationship-wise, if you look at kind of the dealers throughout and me, most people have new leadership in there. And so one of the first things was just a -- we'll shake hands and start fresh.

And what are the couple of bugs from the past we have to quickly get behind us, how do you move forward. And I think there's been a general agreement of there's a way for us to actually partner in a strong way that benefits the customers. And so just a general agreement, which I'm not convinced was there in the past is kind of step one.

The deal structures that we had in the past, and in particular, with Patterson, that was really the one that was kind of the one that was being renewed, right, were complex, and they just got complex over time. And so the real thing is just to make it simple for everybody. And it really comes down to a benefit to actually have more volume.

So the more we sell, the better we both do. I think that's one of the key points. And then drop ship is a lot of questions I get from people. That's just, again, just the simplicity that actually benefits both parties. So you're not asking a dealer to tie up capital in cash in inventory and go.

And there's actually a benefit to us as well is that we're not looking and trying to guess at lumpy orders where all of a sudden we have to be ready. So if we know that there's a drop ship and a steady cadence, we can actually manufacture at a steady rate. We don't have as much inventory. We actually have a better cash flow.

And then a lot of the complexity that existed in the past was a debate as to when was a thing purchased, what was the deal, what was the price, what are you trying to do? All of that goes away. Our simple focus together is how do you go sell something and place it.

And I think that, that in itself will actually create a lot of efficiency and a lot of benefit for both sides.

And the drop ship dynamic is something I know came up on the last earnings call. Maybe just walk us through a little bit more about, a, the most important short-term benefits to you and the dealer and then b, how you think about the financial trade-offs of how big drop ship should be, if that makes sense?

Well, it's really more about a simplistic approach for both sides, right? So right now, we're tracking dealer inventories and how much do they have? Are they going to sell it? Are they going to renew? Do you need to incent them extra to get rid of some of that things? All of that goes away. And so your real focus is how do we actually capture real estate and grow together.

And we're not debating about something you may have purchased 6 months ago that's still hanging on and how do we move it and all of that goes away. So I think that's my point is the simplicity is we'll track a pipeline, we'll share it together. We'll know how to build and level load inventory. And then we just simply have the ability to ship and then we go support a customer and not worry about some time in between. And truth is dealers have carried sometimes between 3 to 6 months of inventory, and that can be really a disruptive factor. It's not a benefit to them as well.

Maybe shifting a bit, and I'm sure we'll come back to a lot of this dynamic, but to the offensive side, in particular on start with R&D. You've been fairly straightforward. Do you think the organization could use a heavier R&D lift to drive better product vitality. Where are the immediate excess incremental R&D dollars being portioned across the portfolio?

Yes. So it's a couple of things. I think we have, as a company, spread R&D among all of the verticals, I don't want to say evenly, but not necessarily with a strategic focus. And so everything we're doing right now is to create a sequencing and a focus to go deliver at a certain point.

I think everyone would agree DS Core is unique and quite frankly, an opportunity to leverage. And so while we have the base there, now you would normally go through over many years and implement different verticals. How do we do endo, how do we do ortho, how do we do implants.

The initial tranche of accelerated spending will now allow us to bring all of that software at a faster pace at the same time. So we no longer have to do one after the other, we can do them all together. AI will be a big part of helping that as well. And so really, the initial thought is how can we realize the potential of DS Core at a faster pace than our current spending had allowed? That's number one.

Number two, is there some modernization within the EDS portfolio that we should do that keeps us competitive. Some funds are going into that way. And then really just the third approach here is not necessarily realized in 2026, but how to accelerate the potential of ortho, both with robotically meant wires and also the aligners.

All of that was where the first tranche of incremental R&D money went.

AI and robots, I love it. But I mean on the DS Core side, I tend to agree that it's an untapped potential opportunity. Maybe can you talk to us is penetration rate of dentist the right way to think about success on DS Core? Is it the enhancements to the workflow, how much they can access your overall solutions? Like how should we think about where DS Core drives the most value to your customer?

Yes. And listen, in a simple way for me to understand it, I put it this way, it's like we invented the smartphone, and we have it there. Now we're coming back and we're designing all of the apps to get utility out of it. And I think that's the thing is you've got this core to build upon. There's a natural leverage with it. So for example, if you are a dentist using multiple verticals use DS Core, you don't have to be retrained each time as if you had 3 or 4 different companies. You just have one path that all works this way.

So there's an ease of use, there's a simplicity for the dentist. So the real thing right now is to create more utility of -- we've got CEREC on Core. We made that move. Now we've got to go get implants and endo and ortho on Core and several others. And really, all that is, is just making it a comprehensive solution all working together for the dentist.

I feel like that coming in faster through the spending. And really, right now, while we don't face much competition would be a way to capture more real estate. So to answer your question, I think it's really about the ability to transition into workflow and have more dentists using DS Core as their main workflow model.

And we in the financial community think about -- I constantly think about my model, my inputs to my model. I have an R&D line and SG&A line. If you think about your business and how to make the business better? And obviously, we both do both.

But how do you think about the incremental spending on R&D against the targeted spending on the sales and infrastructure side to make sure that you're balancing your potential for new product launches, new workflow rollouts against making sure that you have the right market penetration for those rollouts?

Yes, it's a great question. It's a constant battle, right? And so certainly, as you look at this, you look at it in 2 chunks. Your commercial engine is really going to be immediate going into the long term, whereas the R&D is really about what can I get over the next 3 years. And so really, it's more about a tactical and strategic play and you're saying, how much of my funding do I want to place into both.

The immediate need for us, obviously, is to stabilize sales and return U.S. to growth. So that gets the lion's share of it. But at the same time, you need to feed them 2 to 3 years from now, and that's really where this other piece comes in.

And so for me, as an old finance guy, I do it as a percent of sales, one of the main things. What do I think regional-wise, how am I doing? Then there's efficiency measures. Am I actually using what I said I would use a good way.

But I would tell you, if I had to default anywhere right now, it's stabilizing the business and returning to growth through commercial. Second is the innovation.

And you gave me a perfect segue. You talked a bit about clinical education before relative to implants. You've also made previous investments -- previous discussions about investments in the sales force in other pieces of the commercial infrastructure. Dentsply has done this in the past. How are you doing it differently?

Yes, it's a good question. I think, first off, it's really about just being transparent to everybody throughout the chain, where are we? How do we get here? What are we going to go to do differently? And I think it's making bolder decisions about these moves and actually clearly articulating where are we going.

I think in the past, there were cuts done to make profitability. I'm reengineering a P&L to drive sustained growth, and I'm pointing where it will go to. The capital allocation model, the cancellation of the dividends is another example of that, even the acceleration of R&D.

So I think the difference is there's a holistic look at the health of the business, short, long term business itself, the financial markets, all comprehensively that I don't feel was done in the past.

And as you think about it, and again, because you proactively brought up implants, it seems like a fairly direct opportunity. How are -- maybe similar to some of the R&D dynamics, how are you structuring the priority of investments in the commercial infrastructure, knowing well here that for some of your products, the investments are investments alongside your dealers?

It's a great question. I would tell you right now, we're mid-stride in developing our implant strategy. So I think one of the faster things is reestablishing dealers, as you mentioned, and getting capital there. The very next move for us is the creation of a CEO Advisory Board with a lot of dentists where we're going to talk about strategy, evaluate the portfolio, decide how to use clinical data to go drive that.

And as you said, an enhancement in clinical education to create awareness peer-on-peer training, which is key, and there's nothing more powerful than having dentists train dentists with that. At the same time, dentists training our reps. I feel like we underinvested in our rep education. We almost have to bring in a Med Dev model about how you do that through several weeks to get these folks stronger.

And then there's ultimately a pivot, Mike, from selling a widget into actually the work stream, which comes into DS Core. And so we have to train our reps to think through the dentists side. What is the process flow from imaging through to follow-up? How can they be trained to understand all of that impact?

And then how do they have enough proficiency to stratify our portfolio and say, here's the solution for you. The thing that amazes me most is we literally have the strongest implant offerings and have not capitalized on that. That's one of the biggest things we have to turn around this year and next year as we go deeper.

And from a competitive perspective, what does that look like in terms of the capitalization opportunities? How do you -- or how much of it is products versus product awareness versus product education because all 3 of those things take on different measures.

I would tell you we do not have a product gap of note. We have a communication and an execution challenge that I think is there. I mean our Astra product is arguably the best in the industry with the fastest healing, the lowest infection rates over 30-plus years, and we don't flex that muscle.

Our MIS portfolio is amazing. And yet we have it out there and it sort of goes on its own. We have to turn it into proactive, honestly, weapons to penetrate the market as opposed to just letting them roll. And I think that's the biggest change is assigning owners, creating education and driving these things meaningfully, I think, can make a difference.

Thinking broadly about the market, the third dental company we've had so far, and the theme has been fairly similar to what we saw in the earnings calls, which is signs of stability.

Like how are you thinking about relative to your key product areas, especially on the equipment side, both imaging, et cetera, are you -- where are the biggest sources of stability, where potential source of green shoots, where areas you're still concerned about relative to end market demand?

Yes. So listen, I would agree with everyone that you spoke to that the market appears stable, even slightly improving. I would come back to say that our challenges are not related to a market, whether it's up or down. The fact that we're negative doesn't matter where the market is.

We have to change that. And so it's really more -- we currently have to go fix ourselves and reestablish with customers. What we're trying to do is not dependent on the market up or down. Certainly, it helps but I don't think I can lean on it and say we'll recover because the market is up, therefore, we're up.

That would be a dangerous spot for me right now. Maybe that's different in 2 years, so we can have that conversation. But right now, it's a great market to build in. There's nothing working against us, some slight noise with the current war that's going on, but nothing that derails you. But it's really about focus and execution internally for us.

And quick sidebar because you mentioned that. Anything we should be thinking about relative to manufacturing locations in the area. Hopefully, what you have, everyone is okay and what's important...

Yes. Thanks for asking it. And they are okay. And of course, we have 2 plants that are -- have missiles literally flying over them in Israel, right? So we're watching. We have all of our employees safe. We're keeping them out of harm's way with that.

While there could be some disruption, which we'll say over time, we currently have enough inventory in the market that I don't think there's anything to signal right now. A prolonged work could always change that course.

Hopefully, we don't have that for many reasons, but I appreciate that. Just check the box on the financial side. Turning to DSOs. You come from outside the dental world. But you come from a world where there's plenty of other broader groups. How -- looking still within your first year in the tenure, how are you viewing the strategic nature of your Dentsply's push into DSOs, DSO expansion and where you think your strongest versus opportunities for improvement?

Yes. It's one of those ones. Again, I'm going to go back to say sequencing, it's very important for us. I was kind of going into capital into implants and ortho, restructuring the U.S. sales force. We have all of that underway.

Now as you know, when we mentioned, we're moving into ClinEd, rep type of approaches. With that, now you start pulling into some DSOs.

How do we actually work on programs, not only to train our reps, but actually use a focused ClinEd through the DSOs. So that entry way in is going to allow us to actually recruit a new structure, a team who will focus on DSOs to penetrate.

I believe our strength is the holistic portfolio we have. We can sit down with them and offer every single thing as one company. No one else can really do it to that extent. Even the dealers are piecemealed among what they offer. And so our ability to leverage with the DSOs can be very beneficial.

I'm a fan of a de novo approach within the suites themselves filling it out. And so I would tell you, it's coming. It's not where it is right now, but within the next 6 months, us building a DSO team and strategy and penetrating that is something that's on my list.

So is that the sequence that we should be focused on and not the strong obviously, DSO representation now, but from a strategic perspective, put the team on the field and then give the team the playbook to go out and win new business?

It is. And Mike, it just comes down to this, right? We're in a turnaround. And so I evaluate some people. And if they're capable of moving along, we fuel them and go. If they're not, we remove them and hire. And currently, with that role, I'm in a remove and hire situation. So I think it would be more towards the second half of the year.

Okay. Turning a bit a different way back to innovation, but you touched on AI briefly. AI, obviously, I think I'm asking an AI question every fireside here, so clearly time for it. But how do you strategically view AI as an outward-facing tool versus AI as an internal efficiency tool?

Yes. It's interesting, too. I always say the truth is none of us really know, right? Let's be honest. It's moving so fast and our understanding isn't quite there. But there's something there to not only embrace and push, but also be wary of. And I would tell you, just by human nature, I don't want to be the first one out and the most leading with this in something that changes so rapidly.

I don't want to be a follower, maybe a fast follower, but eyes on it. So you broke it down into 2 important areas. On the external facing, we've already started using AI and of course, it enhances every day.

With the ability to take an image, diagnose it, recommend treatments and to be active part of the planning of that with the dentist. And so we'll keep going down that path. Customer service and customer experience is something we need to improve and improve rapidly.

We've begun playing with bots online to significantly reduce call times and therefore, response times to our customers. So there's little dabbles like that, that we're getting into, not little, but actually moves that we're doing that way. Internally, the R&D team is actually looking at AI written software, and they're not there yet, but that capability in the next 12 months is highly likely, which can accelerate type software development and even product designs.

And so part of the funding that I failed to mention before is also down that path. I think in-house, when we continue to rebuild the support departments and the P&L and the structures, I think AI tools for some of the basic finance, I mean, AR, AP type of things like that can be big.

The analytics and the approach, whether it be in legal or other areas, I think there's applications that will allow us to move fast consistently with less bodies that can free up more money for us to actually place into commercial of market penetration.

Got it. Yes, I agree with you, things are moving fast. We've honed in a lot on stuff around the North American market, and I mean we touched implants a bit. But how do you feel about the global presence, in particular on implants, which I know obviously, you have a great global reach.

And if you think about ex U.S., where do you -- as you sell into the -- still within your first year of the role, view you have the best product penetration opportunities based on branding in local markets?

Yes. I would say EMEA is one of our strongest markets. And when you remove some of the delisting of SKUs or products and you tease through that noise, you would actually see that several of the products are growing significantly above market with penetration.

And so I would say that EMEA as a region is one of our strongest for implants. Asia Pac has the most potential. And again, we're evaluating China and all of the changes in China to understand what our response is there.

But outside of that, in the other areas, the potential for implants is amazing. But I would say EMEA is strongest with U.S. having high potential longer-term growth out of Asia Pac through the implant business.

And obviously, the Dentsply Sirona organization has a strong roots in Germany and whatnot. And so as you think about across EMEA, is it how do you view the opportunity on developed versus more developing countries in terms of penetration potential?

Yes. Certainly, the developing will be the higher rate of penetration over time, just given the small scale and where they can get up to. But at the same time and kind of where you're going, but you also need to preserve and protect the business you have.

You can't lose it in the developed areas. You've got to let that grow even if it's at a slower rate to be the foundation as you dig deeper in other market penetrations.

Talked about implants. We talked about -- you touched on some of the imaging CEREC, equipment and consumables, the knots and bolts of the dental market, I feel like it doesn't get talked about a ton. How do you view the health of your basic equipment and consumables portfolio right now?

Yes, very healthy, actually. I think the foundation we build from is our EDS business, which is where we have most share and it's a very strong business for us and it kind of goes. So I think that, that platform is doing well, can do better again through just the basics of ClinEd, RepEd type things for sure. But I'm pretty happy with it.

Again, if I look at our products, I'm going to go back and say, I really feel that we don't have major gaps. I kind of point the finger and say it's how we're executing. It has to improve. That does include EDS. And so again, I see opportunities to get even stronger there.

And what are your thought process feelings about using promotional opportunities to try and reestablish business? It's obviously a trade-off of value and volume versus price. So how do you philosophically view the ability to partner promotionally with dealers and vendors?

Yes. Listen, I'm very favorable towards that. So we go back past life, even in spine with Globus. The ability to actually place capital and earn it out through volume is there. The potential is here more than anything else, I think, in dental as well.

And so I'm game to come up with plans that allow us to actually consider is there a capital and a pull-through bundle that makes sense for both parties. Again, with that, there has to be volume commitments in order to be price relief. It can't just be one.

We're in it to grow as a total. And listen, the ultimate focus for me is sustained profitable growth. But ultimately, that throws off ever strengthening cash flow. And I want to become more of a cash flow-based company over time. And again, I don't think we're there in the next 12 to 24. But I think going forward, having a strong cash flow and investing that wise, it could be really a lift for the company.

And thinking across the rest of the product portfolio, intraoral scanners have been through a multiyear cycle of kind of market establishment, pricing differentiation, stratification. You got Primescan 2, you got Primescan Direct. Like where do you see the best strategic pushes on the Primescan family right now against what's been a varying level of price point. Probably?

Yes, probably this soon -- I shouldn't say soon, but I would think in the future, Primescan 3, which is going to be a different design and coming out will probably be one of the things we'll want to use and leverage as a way to create penetration.

I think right now, we'll stay the course with what we have. And it's not lack of creativity. It's just there are different items that we need to do and focus on right now. And I think coming out with a new strategy with the imaging isn't quite there.

But again, I would say '27 can be a very different story depending on how we progress.

And Primescan 2, I think a lot of the dynamics was ease of use, the handheld perspective, the portability. Is Primescan 3, I don't want to get too far ahead itself, but maybe the advancement of the family more about the hardware or the software or both?

Both. Yes. And it's easy to say because it doesn't exist, Mike. So ideas right now. But one would think that smaller, faster, cheaper would be really where you want to get to. And to me, it's about iterative learning and making this move into a simpler package that can help us expand further.

I'll get a Sketchpad after we can start to...

Yes, we'll figure out.

Let's talk about the orthodontic portfolio. I mean you highlighted the roll-off of Byte into next year. Like how do you feel that SureSmile now that you're now a professional-only orthodontic platform is positioned in the market right now, especially against the potential long term of transitioning from traditionally GP into the orthodontic market.

Yes. And I think you kind of answered it right there. So we have to reestablish a stronger presence in ortho. Having exited that out for GPs is something that I want to change. The biggest thing is with SureSmile, again, it's one of those assets that we haven't flexed the muscle on with clinical data, with outcomes with materials that are really strong and very capable of having its fair share of market.

The fact that it's a comprehensive package that is beyond aligners into robotically bent wires and creates a solution for orthodontists that can either be combined brackets and wires along with aligners or just aligners or one or the other.

The biggest thing for us is modernizing our platform. We have an out-of-date software that wasn't invested in. We need to roll that into Core. So part of the acceleration of R&D this year is to bring that further along to make that simpler to use, modernize it out to today's standards and allow us to go out and compete against the Invisalign or the angels and look at it that way.

I really feel that once we have that done and we go through the trainings that we've mentioned, we have the ability to capture share there. And again, I'm not declaring that suddenly we're #1 in the market. That's not it. But there's enough space to get a decent amount of, obviously, free cash flow to use to generate for the rest of the business.

And when you win share on SureSmile, what is the typical profile of a dentist that you bring on board? Is it somebody who historically been only brackets and wires? Is it somebody looking for a replacement product? Is it somebody who is a hardcore DS Core customer already? Like how should we think about where you've been successful?

Yes. I think where we've been successful is, first off, people who are willing to tolerate our software because it just really does need to be modernized. But they also understand that it gives you more planning options and therefore, less special one-off items where some of the market leaders have to go to. And so it's a comprehensive solution that can just become a natural part of the planning for them that works well.

The outcomes, which we haven't discussed yet are higher or better than others, and we have to get that solidified and go share that out. So it's usually someone willing to tolerate. It's a little bit tougher to use the software, but it's better for my patients. And I think that's really where we see mostly conversion versus a hardcore Dentsply person.

And how do you get that data out? Is it clinical papers?

Clinical papers, it's clinical education, right? Hence, the move for that. So when I talk about ClinEd, while certainly we'll be focused on implants, ortho is right up there. And I think that's one of the needs is we just have to share what we have. We haven't done the best job doing that.

And you've been fairly transparent about the Byte financial impact. Is there any qualitative impact that you see in the market? Obviously, you're a new leader, like this was not a deal that you did. And so now it's kind of cleaning up the challenge in the past. But has there been anything in the market customer-wise or patient-wise that is worrisome to you? Or is it?

No. No, not really. Listen, I just think there was something that wasn't the right move that overall, pulling it was the right thing to do. And getting all of that underway and done is there. I think by the end of this quarter, all of the treatments that were in progress are planned to stop and then that gets into the history books.

But I don't know if it did anything to damage us with it. I think it created the rift between Ortho and Dentsply Sirona, and that's really what we're trying to rebuild. And that one will take a couple of years. It's not just going to be a phone call a new guy and suddenly they're all alright, right? So we have to rebuild that trust and go. So I think it created a situation that's impacted us, but it's something that we can overcome.

And as we wrap this up, and we've talked a lot about the investments you're making, a lot of the blocking and tackling, the band-aid being pulled on the dividend. I think everyone understands it.

How are you thinking about the final leg of organizational priorities on making sure I hear you as a cash flow guy. Like how do you make sure that you get that cash flow level where you want it, knowing that you're spending to grow right now?

Yeah. Listen, I'm going to build on that because there's really 2 things. One is a message I do want to throw out there. We are implementing our investment plan, whether it be the 50% increase in clinical education or investing in reps, as we talked about or even double-digit growth in R&D, and that's occurring right now.

We've begun the restructuring really in March. And over the next 4 months, that's also going to occur. So one thing I do want to throw out, Mike, to you and to counterparts in the investment community is, as I look at that and I look at the timing of that, while we don't give quarterly guidance, we will have EPS pressures in Q1, Q2 as you do the investments and not yielding the results of that.

And I think you have the second half lift where that restructuring comes through. So just something for everyone to keep in mind is we're going to spend for the long-term growth, not a quarterly flash. We have pressure upfront, relief coming, which has started in March, probably finish up and then see it in the second half of the year.

And I do think there's a balance of that, that has to be factored into the way we're looking through this year because I'm going to invest in the right things and take the right bumps upfront for long-term gain, and that's where we are now.

But I think that that's probably the biggest thing I want to throw out there is that at the same time as we grow and we deleverage, we'll get ourselves healthier on the balance sheet.

And then I want to remove shares so that we have a stronger EPS growth versus top line. And then that in itself, as we use cash flow can be used to create what I think is a value generation for shareholders.

All seems logical to me. Dan, thank you so much for the time. Really appreciate it.

Good seeing you again, Mark. Thank you.

Good day, and thank you for standing by. Welcome to the Q4 2025 DENTSPLY SIRONA 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. Please go ahead.

Thank you, Shannon, and good afternoon, everyone. Welcome to the DENTSPLY SIRONA Fourth Quarter 2025 Earnings Call. Joining me for today's call are Dan Scavilla, President and Chief Executive Officer; and Mike Pomeroy, Interim 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.enterota.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 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 enables the comparison of financial results between periods where certain items may vary independently of business performance and enhanced transparency regarding key metrics utilized by management and 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 play 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. 2025 was an important year for DENTSPLY SIRONA. We took meaningful steps to position the company for the future by building out a world-class board and leadership team enhancing discipline and execution and aligning the organization around our Return to Growth action plan. Thanks to the hard work of our employees, we ended the year with strong momentum under foot and financial results in line with our expectations.

In 2026, we are fully focused on executing our return to growth action plan by putting the customer at the center of all we do. We are going deeper, moving faster and being bolder to drive sustained profitable growth. I'm confident in the path we've set and in our ability to deliver. The potential for DENTSPLY SIRONA has never been greater, and we have everything at our fingertips to achieve this. On today's call, Mike will review our fourth quarter and full year 2025 financial results. I will then provide an overview of the progress we've made over the past several months in advancing our return to growth initiatives and strengthening execution across the business.

Several of these key developments are highlighted on Slide 3 of our online presentation. I will then outline this year's priorities and walk through our 2026 financial guidance.

With that, I'll turn the call over to Mike.

Thanks, Dan, and good afternoon, and thank you all for joining us. Overall, we had a solid finish to the year in Q4 2025, in line with revenue adjusted EBITDA margin and adjusted EPS expectations that were provided on Q3 earnings call. Let's begin on Slide 4. Our fourth quarter revenue was $961 million, representing a reported sales increase of 6.2% and constant currency growth of 2.5% against the lower prior year comp and included a onetime bike customer refund and distributor pre-buys related to our ERP implementation.

Foreign currency positively impacted sales by 370 basis points compared to the prior year quarter. the onetime customer refund and distributor pre-buy impacts were an approximately 570 basis points of tailwind on constant currency growth in the quarter. Adjusted EBITDA margins declined 10 basis points to 14.1%, resulting from a 300 basis point decline in gross profit, driven by lower volume, change in sales mix and tariff impacts. Tariffs had an approximately $15 million impact to gross profit in the quarter. This was partially offset by the benefit from BiTE comparable in the prior year quarter.

Adjusted EPS in the quarter was $0.27, up $0.01 or 4.9% from the prior year. During the quarter, we recorded a $144 million noncash net of tax charge related to the impairment of goodwill and other intangible assets within the CTS and OIS segments. This impairment was primarily driven by the impacts of tariffs and volume declines partially reflecting competitive pressures. In the fourth quarter, operating cash flow was $101 million, and we generated $16 million of free cash flow. We finished the quarter with cash and cash equivalents of $326 million. Net debt-to-EBITDA ratio was 3.0, consistent with the prior quarter.

During the quarter, we paid $32 million in dividends, bringing total dividends returned to shareholders to $128 million for the full year of 2025.

Now let's turn to fourth quarter segment performance on Slide 4. Starting with the CTS segment. Constant currency sales declined 1.9% due to lower sales in CAD/CAM in Rest of World and Europe. This was partially offset by solid performance in the U.S. with high single-digit growth across equipment, instruments and CAD/CAM. The U.S. distributor inventory levels remain low relative to historical averages.

Turning to the EDS segment, which includes Endo Resto preventative products. Sales on a constant currency basis increased 4% % with growth in Rest of World in each product category. Growth was led by preventative, which increased 17% with strong performance in the U.S. and the rest of world. Moving to OIS. Sales in constant currency increased 6.9% and with the issuance of customer refunds for Bite in Q4 2024, accounting for the increase against the comparable quarter. IPS declined high single digits in the quarter driven by lower implant volumes across all 3 regions.

We saw single-digit growth of the implants in China in the first half of the year and a double-digit decline in the second half of the year expectation as expectations for the second phase of volume-based procurement in 2026 shifted buying behavior in the region. Premium implants declined and value implants were slightly down, primarily due to China and partially offset by 11% growth in Europe. SureSmile, our clear aligner offering declined low single digits in the quarter with a 10% decline in the U.S., partially offset by 15% growth in Europe.

Wrapping up the segments with Wellspect HealthCare, constant currency sales increased 1.9%, including 15% growth in the U.S. and continued strength in Rest of World, partially offset by Europe.

Now let's turn to Slide 6 to cover on our full year 2025 performance. Sales for the full year were $3.68 billion. representing a reported sales decline of 3% and a 4.3% on a constant currency basis. By negatively impacted constant currency by 1.9% on a full year basis. Foreign currency positively impacted sales by 130 basis points due to a weaker dollar versus most major currencies. The largest challenges we saw in 2025 were lower volumes for CAD/CAM and implants across all regions.

Key highlights for the year included EDS growth in Rest of World across all 3 product categories, high single-digit growth of imaging in Europe and Rest of World and double-digit growth of SureSmile in Europe and growth for Wellspect Healthcare across all 3 regions. EBITDA margins expanded 150 basis points to 18.1% and primarily driven by lower SG&A, partially offset by the decline in gross profit due to geographical mix and tariffs. Tariffs represented $23 million of headwind to gross profit across the balance of 2025.

Adjusted EPS was $1.60 for the year, down $0.07 or negative 4.6% year-on-year, driven by a higher tax rate. Full year EPS includes approximately $0.13 and of income from BiTE as we wind down the bike business in the first quarter of 2026, income from BiTE will not recur and will represent a headwind going forward. Adjusted EBITDA margins of greater than 18% and adjusted EPS of $1.60 were in line with guidance provided on the Q3 call. And finally, Full year operating cash flow was $235 million and free cash flow was $104 million.

Overall, our fourth quarter results demonstrate early progress as we enter 2026 with a very clear strategy, improved execution and focused investment priorities. With that, I will turn it over to Dan to share further business updates and our 2026 financial guidance. With 2025 behind us, it's time to move forward with urgency. Our 24-month return to growth action plan is designed to restore momentum, strengthen execution and deliver sustained profitable growth.

This is not a short-term reset, it's a focused transformation built on going deeper, moving faster and being bolder. The plan is anchored in 5 pillars: first, customer-centric mindset placing the customer at the center of every decision to improve experience, service and loyalty; second, reuniting sustainable growth, sharpening our portfolio focus and accelerating innovation in the markets where we can win; third, empowering performance, driving accountability, productivity and commercial excellence across the organization; fourth, scaling the organization, simplifying how we operate to increase speed and efficiency. And fifth, financial strength strengthening margins, optimizing capital allocation and enhancing cash generation to support shareholder returns.

Each pillar has clear actions to find milestones and measurable outcomes. Together, they create a road map to improve performance and unlock the full potential of DS. Let me walk you through our focus areas in more detail and give an update on the progress we are making across each customer-centric mindset. I've learned that when the customer at the center of everything we do, we win. While that may sound obvious parts of our company can serve customers more effectively than others, and that has limited our enterprise growth.

We define the customer as any practitioner who uses our products, whether they purchase directly through a DSO or through a dealer. They are all our customers, and we will continue partnering with DSOs and dealers to ensure customers receive timely, consistent and high-quality support. Last quarter, I shared that we created a global customer service and technical service organization to deliver high-quality support worldwide while remaining agile to meet local market needs.

As we continue to build that capability, we're taking additional customer-centric actions such as creating strategic dentists and lab advisory councils within each business segment to work directly with the DS leadership team for innovation and strategy development. increasing investment in clinical education by 50% starting this year, we believe peer-to-peer education grounded in clinical data is 1 of the best ways to partner with our customers and fully leverage our portfolio.

Investing in comprehensive sales force training focused on dentist workflow and connected dentistry to elevate the value we bring to the customer through our representatives. The field team is and will increasingly be a strength of our company and a critical competitive advantage. Reigniting sustained growth, innovation and execution will define our path forward in the last 6 months, we entered a new market with the launch of the -- Wellspec Surety female external catheter, a new noninvasive solution designed to support women living with severe urinary incontinence.

We've also further enhanced workflow efficiency by bringing CEREC onto DS Corp and introduce new products in our EDS and IPS portfolios. In 2026, we're increasing R&D investment by double digits to accelerate DS core capabilities, advanced connected dentistry and drive innovation across the EDS, implants in ortho. We plan to sustain and expand this elevated investment level. At the same time, restoring the health of our U.S. business is a top priority. We have a comprehensive plan to reignite growth and strengthen our commercial foundation, positioning us to compete and win more effectively in this key market.

We have made meaningful progress in the past 3 months in our U.S. business. We reorganized and unified our commercial teams to better compete in our markets. This realignment has been well received by our sales force and is already driving strong field engagement. We hired Mark Base jack to lead our North America sales force Mark joins us from Zimmer Biomet, where he led high-performing commercial teams and drove sustained growth through disciplined execution and customer focus.

Mike has hit the ground running and is already making an impact. We also strengthened U.S. commercial leadership with a mix of competitive external hires and internal promotions, adding deep expertise across implants, orthodontics, endogonics and connected dentistry solutions. We are encouraged by our ability to attract top-tier talent who believe in our strategy and portfolio. These leaders bring extensive dental experience.

Recently, we entered into new or expanded agreements with key partners, including Benco, Patterson, Burkhart and ADC while continuing to advance discussions with additional dealers. As I've highlighted before, reengaging the dealer channel is a critical lever to broaden our reach and improve or market effectiveness in the U.S. And our sales teams are excited by the opportunities this creates. This multichannel approach allows us to maintain a strong direct presence in specialty segments while expanding our dealer network in CTS to drive growth and market penetration.

Our business segments are -- we are #1 or #2 in all categories, except implants in ortho. We are initially focusing on implants in our Return to Growth plan, leveraging the best-in-class and wide range of implants we have to meet customer needs and using our deep history of clinical data, coupled with our expanded clinical education and sales training program, for our comprehensive ortho offerings, our initial focus will be on the modernization of our software. In powering performance, to lead DS through this turnaround, we're strengthening our organizational foundation -- we're aligning leadership, sharpening priorities and selectively adding expertise to accelerate progress.

This balanced approach builds on the strength of our existing teams while adding leaders with deep experience in global transformation, sustained growth and consistent financial performance. Some of the key actions we are taking, we established a transformation office responsible for coordination of the Return to Growth action plan. This team will also lead our enterprise AI strategy and lean operating principles, fundamentally improving how we work. The transformation office is focused on delivering cross-functional improvements that enhance efficiency and agility.

We continue to progress in our search to identify the right CFO for DS. Mike has been an outstanding partner in his interim role, allowing us to thoughtfully evaluate candidates while we execute against our 2026 priorities and financial outlook. We also strengthened our board with the creation of the new Growth and Value Creation Committee and the addition of 3 new independent directors, Jim Forbes, Former Vice Chairman of Investment Banking at Morgan Stanley. Brian McCann, former CFO of IDEXX Laboratories and Don Zurbay, former CEO of Patterson.

These additions, coupled with an already strong board, will increase our governance and strategic capabilities. In connection with the Board's ongoing refreshment process, Willie Deese has informed the Board of his desire to retire and not stand for reelection at this year's Annual Shareholders Meeting. Willy has been a valuable member of the Board and we want to thank him for his leadership and many contributions scaling the organization to fund our investments, we're initiating a restructuring program to streamline functions, improve efficiency and support a more competitive cost structure.

The program is expected to unlock approximately $120 million annually across the P&L, which will be reinvested in the Return to Growth action plan. We expect to incur approximately $55 million to $65 million in nonrecurring charges, the majority of which will be expensed and paid in cash in 2026 and 2027. Building a faster, more scalable and profitable manufacturing and distribution network.

This includes consolidating resources, standardizing packaging and implementing advanced planning and forecasting capabilities to favorably impact working capital and reduced product cost. Financial strength. The fifth pillar is focused on strengthening our financial profile and driving shareholder returns.

With that, we are initiating changes to our capital allocation approach. Following a strategic review, we have eliminated our dividend. These funds will be reallocated to our debt retirement and share repurchases. I want to emphasize that this decision reflects an assessment of an optimal capital deployment strategy and feedback from many of our shareholders. We remain committed to maintaining investment-grade credit metrics by prioritizing debt reduction and over time, deploying excess free cash flow toward disciplined share repurchases.

Now let's move to Slide 8. For 2026, we expect net sales to be in the range of $3.5 billion to $3.6 billion, reflecting a negative 3% to negative 1% operational growth. While we do not provide quarterly guidance, we anticipate positive sequential sales momentum in the second half of this year. Operational growth excludes a negative 2.1% for the 2025 BiTE headwind and the 2026 onetime dealer capital equipment inventory sell-through as we work with our dealer partners and adjust inventory models.

We expect adjusted earnings per share to be in the range of $1.40 to $1.50, reflecting our accelerated investments in innovation, clinical education, well spec market penetration and commercial investments to drive sustained profitable growth globally as we move forward. In conclusion, we've moved quickly and accomplished a great deal to position the company for a stronger execution in 2026 and beyond. I will close my formal remarks where I began. I believe that the opportunity ahead of us is substantial. This is a moment for bold change and decisive action rooted in ownership and urgency.

With the full support of our Board, we are confident in our ability to unlock the company's full potential. Before I turn it over to Q&A, I also want to express our respect for Don Casey, former CEO of Dentsply Sirona, who passed away last week from natural causes. Don and I were together for many years at Johnson & Johnson, and I always appreciate his leadership and mentorship. Then Spicer employees will remember him for his passion for improving health care. We extend our condolences to Dan's family and loved ones.

Now let me turn it over to the operator so we can start Q&A session. Thank you.

[Operator Instructions]

Our first question comes from Vik Chopra from Wells Fargo.

Maybe just 2 for me. You've talked about the dividend elimination freeing up $128 million annually for capital deployment. Then maybe just talk about the optimal mix of debt retirement and share repurchases is and at what share price levels do you view the stock as compelling? And then I had a quick follow-up, please.

Thanks, Vic. So a couple of things. We do have debt that is coming up to be retired. And I think we want to take advantage of that. I also want to make sure that we don't cross the line and move below investment grade. So right now, we do have our eyes focused on that. I will tell you, I think that we are an attractive stock price right now with the potential that I see. And so my goal is to really work through this return to growth plan. free up the cash, execute that restructuring plan and get as much cash as we can.

But first out of the gate is going to be just controlling the debt. But then as soon as we can in this year, if all works well, I want to move in to actually get into buying back shares. I really can't say when exactly. I've got to work through some of the plan, but that's my targets. And then just on knowing, I may not have a structured cadence. But at these prices, I want to move into next year to really remove shares at what I consider a bargain price.

Great. And just a quick follow-up, if I can. You called out the impact of the new dealer inventory model for products in your operational growth. Can you just talk about the estimated revenue headwind when we should expect this in 2026? And how much of this is timing versus structural?

Yes. It's a great question, Vik. And I really didn't elaborate. But what we're doing is rather than selling into dealer inventory like we've done in the past, we're going into a drop-ship model. And so in particular, with the vendors who do have capital, we expect them to sell that through. My guess is within the first half of the year. That's really what I would think would occur. And it's in the range of about $30 million approximately that we think is in the inventories they would sell through before we move to a drop-ship model. My goal as a company is to be into that full dropship with all vendors by the time we're walking into the fourth quarter.

Our next question comes from Allen Lutz from Bank of America.

Dan, I appreciate the Return to Growth action plan, a lot of great details in there. My first question, how do you think about the timing around some of the recent announcements you made, the expansion with Patterson, Benco, Burkhart, is there any way to size or provide commentary on the size or timing? And is any of that benefit included in the guide?

Yes, it's a great question. Not a major part is in the guidance. It is built in a return out plan for certain Allen. What I would tell you is just a logical thought we're signing people up early in the year, call it first quarter we have the reps to train and get on board for the most part and bring them up to speed. And then they've got to go out with the customers and start building a natural pipeline for capital, which you know is out there. So for me, activity now in the first quarter and into the second quarter, I think, should bear fruit closer at late third quarter, early fourth quarter. I don't really have a breakout in dollars to give you. It's just a natural flow from having sold capital for so long that I don't think this comes out of the gate in the first quarter or the first half. I think it's more of a later second half story where we really see the lift of signing all of these good folks on.

Okay. And then for my follow-up, around the EPS guide, $1.40 to $1.50. As we think about everything you talked about, accelerated investments in innovation, commercial investments, clinical education, should we think about 2026 being the peak year for those investments? Or would you expect those investments to ramp up over the next couple of years as we think about the cadence of your SG&A over the next couple of years?

Yes. Again, a really good question. I think that this is a strong year to do it. I would think it's about the same, not meaningfully different in 20 -- and then really, I'm looking at that point from a lift in the health of the business to become self-funding. And I want to see something, quite frankly, outpacing EPS growth as we get back to top line growth.

Our next question comes from Elizabeth Anderson from Evercore ISI.

I heard that you said on the call about the increase in R&D spend by double digits to drive DS core, EDS and ortho Obviously, you've continued to launch a bunch of new products that we saw in Chicago last week. How do you think about sort of the cadence about where we are setting sort of like brand-new development cycles, so we should expect these kinds of products to come a couple of years from now? Are you thinking like there is something sort of in process and this just helps to speed them up and maybe there's something that launches in late '26 or '27. Help us sort of think through your -- maybe broadly your R&D philosophy and sort of how we should expect these benefits to start to phase in as part of the growth plan?

You got it, Elizabeth. So you almost answered it with your question, so it is multifaceted. So bear with me. DS core is an amazing platform and 1 of the long-term potentials of this company. part of that funding will go in to accelerate some of those applications. So we talk about moving into implants or into ortho or deeper into Endel, we're going to go do that at almost a simultaneous rate and bring those functionalities into our customers at a faster rate I'm not going to commit to dates just yet because as you know, some things require FDA approval. But nonetheless, cellar funding can bring us further along the curve.

At the same time, there are several things in our EDS portfolio that we were funding at a slower rate or even possibly outside that we can now bring in and accelerate as well as products go that way. We also have some interesting opportunities within our implant business that having this funding we'll bring those in, I would arguably say 1 year sooner than planned in this approach. I really can't lay out the cadence of it I think, but part of it is going to be an acceleration in pull forward in the software and creating that environment while we come up and have stronger product offers for our customers.

Some of them are brand new, some of them are acceleration and some of them are things that were delayed that we can bring back. So it's really the mixed bag based on your question.

Great. And maybe as a follow-up, you talked about obviously reorganizing the commercial team. Is that done now? Or is that sort of still in process and sort of we think about it in terms of the benefits of that? I think you mentioned we're just starting, but we should think about those happening over sort of 2 to 3 quarters before they really start ramping. Is that a fair way to think about it in this circumstance as well?

Again, good question. I'll be honest with you, I am amazed at the speed and professional approach the team took in designing and reorganizing itself quickly. It is done. And they're out there now forming is up at the end of the first quarter. And they're going to be active in these new structures really honestly into March and April that soon. And again, to me, it further flexes the potential of this company and the capability of it once you put the right focus on it.

Our next question comes from Michael Cherny from Leerink Partners.

Great. This is Dan Clark on for Mike. Just wanted to ask about how you're thinking about the pacing of the sales improvement here as the different pieces of the return to growth action plan get implemented? I mean it sounds like we should start to see sequential growth starting in the back half of the year. How should we think about first half, second half weighting of sales? And then should we expect to see more sequential acceleration as we think about the early parts of 2020?

Yes. So Dan, I'll stay away from '27 because that is so far off in the distance given what's in front of us right now. That's a later conversation for us for sure. What I would tell you and what I'm trying to signal out is this doesn't change overnight. And I think most people respect that. I think we have a consistent velocity perhaps in Q1 and Q2 I want to start seeing a noticeable change with what we're putting in place in that third quarter. And I really want to see at least the U.S. come out with a plus sign in front of it, albeit small in the fourth quarter.

So we do set the stage correctly for 2027. That's where we're aimed right now. It's early innings, but I'm just telling you that's the way I'm looking at it as I drive this plan.

Our next question comes from Jeff Johnson from Baird.

Hoping I could ask 1 kind of clarifying question that doesn't count as my question then 1 other question. But on the clarifying front, to your SG&A answer, I just want to make sure I understand what you're saying. SG&A as a percentage of revenue up this year, but did you think you can start to kind of grow it just more in line or even below sales going forward? And I think at JPMorgan, you had talked about R&D going from 4, maybe even pushing up towards $6 million feels like with what you're saying you'll maybe get towards 5 this year. So should we still expect that R&D ramp kind of eventually getting up to that 6% range or so?

Yes, you got it. So a couple of things just to point to clarify, I think SG&A will have some influx. It shouldn't be a large pop. Going forward, 1 of our rules as we control expense and really look to free up cash flow is probably to grow some of our expenses at half the rate of sales growth. And so again, I don't see G&A growing big and suddenly getting bigger. That's not really the intent. The majority of the spend back to your point, Jeff, is really going into R&D. And we're hovering around 4% and in 2025 and earlier, I would expect that to be up around 5%.

And as we are successful with this plan, I'll put even more in this year. I'm not saying the target is up to 6%, but that is in the sites. And so what I would think even naturally is a lift this year and the lift next year in R&D, while we continue to get growth and we have to obviously have the rest of the plan working in order to make that second piece happen.

And then conceptually, I guess, the real question I wanted to ask, this is a year where, obviously, you're going to get some leeway to really put these big turnaround plans in place and try to reestablish a growth profile here. One thing I've always thought on Dentsply at least recently, and I know you probably don't care that much about my thoughts, but when I look across the board in imaging in iOS, in 3D printing, you guys have some fantastic products there, but we've also seen competition at lower price points, really improve their product suite over the last call it, 5 years, 7 years, something like that.

Has there been any thought in kind of taking a reset year and maybe kind of bringing some of those price points down to more competitive levels? Or is this really going to be about investing to kind of drive innovation and go about it the way you're saying there?

Yes, it's a great question. Listen, just a couple of thoughts here. First off, the investments that we're doing will drive innovation. And with that, we're also assigning cost targets that allow you to be more flexible in future price and future products -- but that said, I'm going to give you a different industry analysis, right? In the auto industry, you have Mercedes and you have Honda. We're the Mercedes and we'll stay that way. We're not going to suddenly come down to be something we're not pull out of a core competency.

What we're going to do is offer differentiating and meaningful inputs so that the customers will want to use us. We have to earn that through innovation, and that's why we're increasing our investment in R&D.

Our next question comes from Jon Block from Stifel.

Great. Dan, when we think about 2026 versus 2025, which of the 4 revenue segments do you think are maybe call it poised to see the biggest year-over-year improvements or strength versus the segments that just might take some more time and investment to go ahead in turn when we look at further out?

Yes. Great question. I mean if you think about it by signing on the dealers and getting that active, I would lean towards CTS is the 1 that I'm thinking is the first mover. At the same time, as you know, we've got great products in EDS and launching those things out both in Chicago and what we're investing in, I think that should be growth and maintaining strength there as probably secondarily. The focus, as I said in my script as well is, we don't like where we are with implants, and we have yet the best implants in the market. We have to do a better job now to bring them out through education and application. So I think that would kind of fall third in line.

Ortho will take longer because we're going to spend our time this year modernizing the software. I think that's a longer play outside of this calendar that I would expect to see.

Okay. Very helpful. Very detail. And then maybe if I could just ask as a follow-up. You get a lot of great color. Working that I haven't heard you elaborate much on to date is the company's DSO strategy. And obviously, those DSOs are really important to the industry and are fast growing. And Dentsply stone, I feel has always lagged a bit on penetrating the DSOs. And maybe part of that is just due to the company's higher end product portfolio. So maybe if you can touch on how you can get better traction with the DSOs despite arguably the high ASP and can you prove out the favorable returns to these DSOs in order to get the traction?

Yes, you got again, really honestly, a great question. And the answer is I am looking there. The reason I didn't call that out yet is I'm not really in a position to talk about it further. We're in exploratory thoughts, but I will talk about it further. We can go on and fill out an entire suite with everything we have, and we can offer them hundreds of suites to be filled out. So we're in a position to truly partner with them in a meaningful way for all of the capital needs they have in addition to providing the disposables.

So all I would tell you is we're in talks, you can figure out with all of them who they are, and we're looking at what our plans are as part of that return to health. I don't think there's a meaningful '26 move, but you're taking some of my thunder away for that '27, '28 years based on where we're headed.

Our next question comes from Michael Sarcone from Jefferies.

I guess, Dan, you mentioned, and I think this is a reiteration that you'd hope to see a positive sign in front of the growth for the U.S. business in 4Q. I think you had previously mentioned you could get there without any turn in the market. Is that still the case or the thought? And I guess if you could just quickly comment on what you're seeing in the underlying markets, that would be great.

Yes. I do think it's regardless of the market. One of the things I was saying before and at JPM is our return to health is not market-dependent. We need to do a better job in what we have and executing what we have. And I think with that we should be capable of doing that. That said, the market to me is democratically different. I think it's fairly stable. I think similar to what our counterparts as sit, I would agree with those comments that they've made with it. And while there's some increasing optimism, I'm not seeing a spike of any notes. And again, just to reiterate, we're not hoping or paying for that market to suddenly spike up in order to get to our point. We have to do that on our own. Should that occur, that's an additional benefit.

Our next question comes from Brandon Vazquez from William Blair.

I wanted to go back to the increased R&D spend and kind of the focus on accelerating innovation it feels like that's probably 1 of the key pillars here to keep driving interest and demand. then maybe you can level set us like what's the cadence of this? Is this -- you start putting money in today, and it doesn't start coming until '27, '28 or are some of these going to kind of get pulled forward already and we get to start to see some. So maybe give us the latest on what new product is we might be expecting within 2026, more specifically? And then what are the longer-term projects that might be going into the R&D bucket ?

Yes, Brandon, it's a good question. So a couple of things. The spending that we are accelerating today would not meaningfully pull anything into 2026. So I would tell you that a historical one. It's a matter of actually closing the gap once you get into 27 and 28. That's really probably the first part of it that way. new product launches that we have out there were planned out there, given that we don't have approvals, I'm probably not going to comment on.

I would just tell you that once we reach FDA approval, we start talking about things. So while they are out there, and we have them scheduled, given the fact that we don't have the approvals needed, I'm going to refrain from saying here's what I think and when I think it. But nonetheless, we have products planned. We just have to get through the FDA and regulatory requirements to get out there. and this lift in spending that I'm doing, I think, is something that is a bit longer term outside of the '26 calendar year.

Okay. Maybe as a quick follow-up. The another quarter in now just kind of getting your feet here into the portfolio. any noticeable gaps that you're noticing that you think you need to fill? Or I mean, portfolio rationalization as well, but I feel like we've talked about that. But any gaps that you need to either launch products or require?

Yes. No, no problem. I would say no significant gaps right now. I look at our portfolio, and it's very abundant how we organize the portfolio and strengthen our brands and focus clinical education and rep education on those are, I think, what's needed more than new widgets. I think the transitional move from selling implants or other products into a dentist workflow through connected dentistry. I think that's something that we have, and that's 1 of the things we're spending our money on. And so I think the journey is really about the digitization, which I can't say out into the dentists to go drive it that way.

Our next question comes from David Saxon from Needham & Company.

Great for us. Just wanted to ask 1 on the commercial team. Your old firm obviously is in -- was a really strong competitive rep hire. So is that a lever you can pull this year? Or do you need to kind of fix the foundation first and the approach before that becomes a meaningful option for execution?

I would say we may have the potential later this year. We've got to get the teams formed and functioning first. But it's on the list for AutoMark to actually look at it that way in the U.S. in particular. And that you're right, we are going to take from that playbook and use that in a great way. I just don't know if I can do it as soon as the second half. Certainly, as we exit the year, that's going to be a key for us.

Our next question comes from Lily Lozada from JPMorgan.

In the prepared remarks, you referenced BBP and ortho and implants this year. So can you talk through how you're thinking about that -- to what extent is that factored into the guidance? And do you see it being a net negative or potentially a positive to revenues, ultimately, if you can get volumes to offset price?

Are you talking about the accelerated R&D where we're going to focus,I just want to make sure I answer it the right way.

No. China BBP.

China. I'm sorry, I didn't hear that piece of it. Thanks. I'll tell you, we have our eye on China. Certainly interested. We understand the strategic impact there. But to be honest with you, the return to health plan right now is focused on first getting the U.S. up and on its feet, going through these processes first this year. We'll pay attention to China, make no doubt about it. We have an interest in it. But if you look at where that falls currently, even in our overall sales, it really evolves into low single digits as a percent of our total pie. And so we're just, I would say, prioritizing more of the U.S. Health first, keeping feeding Europe as it is EMEA, I mean by that second and then we'll take a look and see as the news evolves to China, what our best move is. We are evaluating things. I don't want to sound like we're in have plans. We have 2 or 3. We just haven't really made a conclusion yet as to which direction we want to go in there.

Got it. That's helpful. And then as a follow-up, can you talk about how you're thinking about free cash flow this year? We know Dental is a business model that's capable of generating really strong free cash flow conversion. So what are some of the headwinds and tailwinds we should be keeping in mind for this year? And how are you thinking about where that metric can go for you in 2026?

You got it. Well, 2 things. We don't really call out free cash flow with our guidance. I'll stay away from that. We do think it can improve. I think that we need to move into our working capital exercises that we have in play, and that cuts across all of those type of items. And my long-term view of this company is to be a cash engine, like you said, and I think the potential is there. It will take us a bit of time to get there. But everything in our return to growth plan is focused on turning this into a much stronger cash flow engine.

Our next question comes from Michael Petusky from Barrington Research.

Thanks for the question, Dan. Again, I think it was in November on the third quarter conference call, you've sort of called out some of the things you want to do in implants to sort of turn that business around and that you talked about adding more reps or training, adjustments in branding, leveraging infrastructure. And I'm just curious, have you been able to sort of implement any aspects of some of the steps you feel like you need to take to turn that business around?

Yes. The answer is yes. And so treating the focused sales force from top to bottom within implants is 1 of the other things we're talking about within our commercial engine and we have that done. The expansion of clinical education because I think that's a very viable part and needed part that's out there. That's number two. A pull forward of some of the innovation that we're doing with R&D as part of that funding that's up there as well.

And where we are currently working on and not yet ready to talk about is just our brand strategy and how we put everything that we have together and come out with all of the power of not only the implants but our assortment of abutments and how best to use them with the crowns, whether it be chairside or through our labs and so that piece is really working through, and I expect to have a better answer in the second quarter. We're just in mid-stride finishing that up yet. But we have all of the firepower of the team, the education now.

We just have to finish up some of these other modes to get it active.

Our next question comes from Glen Santangelo from Barclays.

Dan, I just wanted to follow up on the free cash flow question. I understand you don't want to pin down to an actual free cash flow number. But by suspending the dividend, it seems like you're going to free up roughly $130 million. And if we have free cash flow something generally in that neighborhood, it looks like a starting point of cash to work with might be roughly, call it, $250 million. And then I think in the release, you talked about charges in the $55 million to $65 million range.

And so when I sort of net all that out, is it reasonable to think that maybe you'll have almost $200 million when I think about splitting that capital deployment across investments, debt pay down, and share repo. And I think in your prepared remarks, you've seen to suggest that there was some specific debt that was coming due this year. I don't know if you can just give us any -- put a finer point on any of those numbers just so we can think about how the capital structure may change in 2026?

Listen, I think that might be an after-hour call thing, just because there's a lot of math that's out there. What I would tell you is the dividend elimination is going to be repurposed into both debt retirement and share repurchases, right? That's really the main gift. We just know that we can have an increased total shareholder return, applying the cash that way versus the dividend. And so we can factor that out.

But just back to your point, even if you took the math, the $130 million with that being eliminated, we're going to turn it around to these other areas. We're not looking to build up the cash that way just yet. So I'll leave it there. And like I said, those other puts and takes we could take a look at your model offline and figure that out.

Our next question comes from Steven Valiquette from Mizuho Securities.

Yes. Just had a question just around the renewal and/or expansion of the Patterson agreement. I definitely appreciate you can't go into details on new contract terms, et cetera. But I guess, at a high level, do the new contract terms move the needle materially for you 1 way or the other just for 2026. I mean on the 1 hand, you might have a little bit lower pricing, but maybe more volume? Also you cited 3 other renewals. Well, just curious if any of those are equally important versus the Patterson renewal?

Yes, Steven. So a couple of things. It really is a new contract with Patterson. It's not a renewal. There are many different terms in there that actually benefit both parties. To be honest with you, it was a great conversation with the team, and I think this will come out well for both parties. -- for us it's going to be favorable just again, because they know us, they know our products well. They're key, especially with our [indiscernible] systems. And I think what excites me is the ability to get the training of their team and opening those doors with them.

I do think that can be a meaningful lift coming out with that new contract with them. I believe with the other vendors, these existing or these new contracts will be even more beneficial because you're getting all of that expanded feet on the street, while you're creating your new vertical sales force teams to focus on specialty. And so I just feel like it's a faster way to penetrate the market going through that pathway.

I'm showing no further questions at this time. So this concludes the question-and-answer session. Thank you for attending today's conference. This does conclude the program, and you may now disconnect.

Hi, everyone. Thanks for joining. I'm Lily Lozada. I'm part of the med tech team here at JPMorgan. Very happy to have the Dentsply Sirona team with us here with us today.

I'll pass it over to CEO, Dan Scavilla, and then we'll do some Q&A afterwards.

Thanks, Lily, and good afternoon, everyone. My name is Dan Scavilla, CEO of Dentsply Sirona. I joined the team five months ago. Prior to that, I spent 10.5 years at Globus Medical in various roles, including CFO, COO and CEO. There, we actually had a great opportunity of taking our revenue from $300 million to $3 billion. And in doing that, really focus on sustained profitable growth, and delivering best-in-class margins in the med dev arena.

Prior to that, I had 28 years with Johnson & Johnson. There, I had worked in pharmaceutical, biologics, consumer health care and med dev. In J&J, that gave me an exposure to multiple areas in the health care environment, also taught me a lot of business models that I feel are applicable today.

I joined Dentsply Sirona, and I may refer to that as DS or Dentsply Sirona, I may call DS as we go through this conversation. Really, when I realized the strength of our brands, the brand loyalty that we have with our customers and the fact that we have an integrated portfolio that really will allow us to shape the future of dentistry and connected dentistry using our DS Core platform.

I promise not to read this next slide. It's the forward-looking statements and shown as needed. So we'll move on.

What I do want to cover is the obvious, who are we? Where do we play? I want to talk about, again, the strength and breadth of our portfolio. And I'm going to show you real examples of what exists today as we shape the market as well as where we're going to go in the near term. We'll then pivot into the return to growth action plans that we have underway.

So let's start with an overview. Dentsply Sirona is a global diversified dental technology leader. We operate in over 100 countries, and we touch approximately 400,000 practitioners a year through our training programs. In addition to that, in the past four years, we've launched over 50 new products while still remaining the leader on single-visit dentistry, celebrating 40 years with our CEREC Mill system, which continues to be the benchmark in the industry. If you look at the pie charts, you can see that through our integrated and diversified portfolio, we drive a lot of strength, not only in the product segments, but also in the geographic markets, which creates great opportunity for us as we go forward. As we reset our foundation, we believe that we can grow at or above the market and provide attractive returns to our shareholders.

This is a quick look at the market and where we play broken out by business segment. The real message here is that our TAM currently is $33 billion a year, growing between 3% to 4%. And what that offers for us is sustained growth over time, not only as we turn around and continue to grow, but it really does create a great area and hunting ground for us to grow faster or further with opportunities to expand each year through these type of items.

If you look a little bit further into this market and then you look at how we play by business segment and our sales, I'll focus on the middle of the slide here and you look at some of the key brands, and these are strong brand names with the dentist strong brand recognition, these are just a snapshot of what we offer. We have so much more I couldn't fit it on to this page. We really have a broad and diverse offering to meet a lot of different needs throughout the spectrum of cares.

Down the bottom, you can see where we index within those markets, holding first or second position in most areas. except orthodontics and implants where we do under-index. I'll talk about that more in future slides.

I want to pivot to the challenges and the priorities of our dentists and really want to go through some of these things. We'll start with the challenges. So the first is we see from surveys over the past few years, and it's remained consistent with us, about half or 54% of the patients turned down treatments that are offered by the dentist. And of course, that has revenue impacts, the ability to close out a deal and move forward with them. There are operational constraints with, say, 36% of the dentists are concerned about whether it's the efficiency and the time in the chair or the amount of chairs that they have, but they have a constraint of how many patients they can see or visit for several different reasons. And finally, most or almost 80% of the dentist see the cost as a key barrier for them to really push forward with the digital dentistry and adopting it, bringing it forward.

At the same time, if you move over to the right-hand side of the chart, the priorities in their focus area and not surprisingly, 65% want to grow their practice and drive profitability, right, to increase income, put more things through. Obviously, more than half are focused on operational efficiencies, more throughput means more patients, more chair time, therefore, more profits that help them grow. And they all recognize that patient outcomes can obviously say, they all want excellent ones, but in particular, using a digital approach and a streamlined approach can help do that in a more repeatable fashion.

We know that connected dentistry is a great way to do this. We believe that our DS Core platform, which is functioning today and expanding is a way for us to address these things. And I'll give you an example of where we are -- where we're uniquely positioned along these ways is we have products throughout all of these, implantology, orthodontics, endodontics and restorative. And we have the ability through DS Core to use one platform, one ecosystem for our dentists to actually provide a synergized approach for their patients. And whether you're a DSO, a multi or single facility owner, we can actually meet the needs of this over time, whether you are a general practitioner, you want to get into specialty or specialty you want to expand, using DS Core as a base allows us to meet those needs and expand those needs in a way that no others can.

I'm going to give you a real-life example with this and walk through what we have today that's out there. So we're going to talk about indirect restoration, which is about 30% of office revenues in the U.S. We've taken a crown, which is the indirect, and that can be a multi-visit. Sometimes it can be a week or more for that to occur from first to second visit. And we've reduced it down to an hour utilizing what we offer today. So whether you come in with an intraoral scan, which is what you see on your left-hand side of the pictures, which will bring the data into an AI-driven diagnostic tool so we can understand what's going on and offered treatments and then plan what those treatments are, again, using AI in the middle. And then through our current capital, we can actually make custom crowns in this case, as we talk about this and do the treatment.

So, one visit, one hour, looking through a simplified workflow, shortening how we do design time with our mills themselves and offering several different things, we have lower barriers to entry and scalability that exists today. And then really, what this does is unlocks opportunities for our dentists to go drive this even more.

This is really exciting because it exists today. It's coming up. It's the first realization of DS Core, which I would tell you is think about DS Core as an iPhone and then the applications or the apps that come on this. In this case, indirect restoration is one of those type approaches.

If you look and say, where are we going from there, again, utilizing DS Core one ecosystem, the constant base coming out to these other indications, we're looking to accelerate our investment in R&D that will allow us to bring these additional features onto the DS Core platform to further enhance connected dentistry.

Implantology is one of our top priorities, followed by comprehensive orthodontics. And if you remember a few slides back, I shared with you that we're under-indexing in those areas. So increasing our investment and our focus there is one way we're looking at return to growth in those areas in particular. But as we want to maintain our lead in endodontics and restorative, we also want to bring that on to offer a suite of workflows for our customers as we go through this.

So now that we've talked about our scale and our potential, I want to shift into our return to growth plans that we have in place. Simply said, we've underperformed the market over the past several years, and we recognize the need to do something differently and do something urgently with that. What I will walk you through is a plan that I formulated over the past 5 months that is in play. And what I would tell you is this is executing an action plan with measurables. It's not a theoretical plan, but it really is a tangible approach that we have in play as we go through this.

I'm going to start with the first two pillars. I have five, but the first two are going to go as follows: the customer-centric mindset, putting the dentist at the center of everything we do is something that we need to improve in Dentsply Sirona. While we have great products, and as I mentioned, really strong brand loyalty, we have focused internally for several reasons in the past that we have to change. I'd like to say we have to turn our chairs outwardly facing and look at our customers and work with them in a more proactive fashion.

Ways to do that are multifaceted, and I'm giving you a sample of some of these things. This is not all comprehensive on these slides. But the first thing is within the segments that I showed you, so endodontics versus implants versus ortho, I'm going to create a KOL board to work with me for each one of those. And I'm going to use that in a way to understand how are they seeing practices and the market evolve, competition evolve as we're looking to develop plans and moves and strategies, I want to bounce it off of these key opinion leaders in a way that creates engagement with them as they help us turn this around.

Going one step further, clinical education is key to anything that we do, especially in implants and ortho. And we're going to increase that to about $40 million a year. That's double what it is today for our investment to actually drive clinical education, using KOLs to do that, but also reaching out to other dentists to actually create a stronger presence than we have had in the previous few years. Enhancing dentist engagement in R&D really means getting a handful of other dentists besides the KOLs I mentioned, to work at earlier stages with our R&D team for hands-on feels for the products. Are they appropriate? Will they work with their workflows and drive the efficiencies that we want to do. And so again, creating more engagement at an earlier stage of a product ideation is the key with that.

And then this really does fall under the customer-centric mindset. We have to increase our investment in our sales force education. We've had high turnover. We've hired reps back, but we have to really put an investment in there so that they understand the dental workflows, the multiple workflows, the ability to really partner with the dentists and offer our products in a more comprehensive fashion. So that's the first pillar that's underway that allows us to reengage the market in a stronger position than I believe we've done in the past several years.

The second pillar, which is somewhat of a result of doing that well, is reigniting sustainable growth. And the first thing is we need to accelerate our investment in innovation, which is R&D. And we're currently at about 4% or $150 million a year. I'm looking to increase that at double digits over the next 24 months. If I can get it all done in one day, I'll do that with a turnaround. I want to do it in a prudent fashion. I might take a few steps up. But what we're looking to do is put a meaningful amount of dollars more into R&D to further accelerate the realization of the DS Core platforms I shared with you on a previous slide and to bring to market more appropriate products, but more importantly, connected dentistry and the holistic offerings that can be out there through DS Core as a way to go do that.

The U.S. is the one that needs most of the turnaround. It's been the one underperforming the most in each segment. And so working through how to invest in that and drive that while keeping EMEA going. And the reason I put that in there is I want you to understand, EMEA has been growing at or above market over the past year and should continue to gain momentum there. In other words, it's not broken, don't mess with it, focus on the U.S., get that up and running while we expect EMEA to perform for us and generate cash for us to help strengthen the U.S. approach.

The next move, while sounding simple, is a big move, unifying commercial functions, around marketing needs under the new Chief Commercial Officer, CCO. We had five different leaders running commercial and trying to move forward as one was a difficult thing. So creating the Chief Commercial Officer role, consolidating all of commercial under that allows us to move in Unity to move faster and to be consistent in what we do. That was done and hired three months ago and is in play to move forward.

And then reengaging and expanding, which is key here in the U.S., our dealer networks for the equipment. We mentioned just really about an hour ago that we had signed the Benco deal. More news of that will come over the next several days and next several months. We'll continue to do that. But what we're looking to do, again, is not only reengage what we had, but go beyond that so that we can create faster penetration, more feet on the street to take our products further and deeper into the market at a better rate than where we've been. So that's the commercial side of the pillars.

The next two are really more about the internal side of, okay, what do we do to do this better and support the field and our customers. The first one is empowering performance. And so we're creating a turnaround plan, which is going to take funds from certain parts of the P&L, middle of the P&L, but some of it is in cost of goods sold as well and focus that in, as I mentioned, on commercial growth and innovation. And so the transformation office was established a few months back to actually drive this and stay in touch with this so that we get it done. We have metrics, we have meetings, we have a structure to realize this and drive it so that it becomes a reality.

The other thing which sounds common sense, and it is, is we actually, as a company, need to make faster decisions with the customer in mind. There are several reasons and several items where we've taken too long to do that. So streamlining down who's involved, holding accountability to do it at a fast pace allows us to change the customer experience, whether it's through a dealer or direct to have our customers more satisfied by us moving faster as a company and being more competitive.

In order to do some of these things, we're putting an AI strategy in place. I have hired someone to drive the AI team, mostly for efficiencies. And so what I'm looking there are some basic things, how do you run accounts payable or accounts receivable, how do you do your filings for R&D or even for the FDA, different items like that, that allow us to do things faster, consistently with less manpower, so we can put more manpower on the street or in our R&D shops along those lines.

Now I say that because AI is also very deep in the R&D area, but I don't want to play with that. I'm leaving that separate under our leader, Kevin, while we focus more on the business needs of AI here in this return to growth plan. And then simply just data analytics. We have a lot of information. We have to do a better job at looking at predictive analytics and moving proactively. And again, as we get back to growth and as we stabilize the commercial side, we streamline this down. I'm looking to really use a lot of information to drive moves faster and deeper.

On the scaling of the organization, I'm looking to unlock this year about $100 million in the middle of the P&L, a little bit in COGS, but the rest of that in order to bring it into funding the commercial side and the innovation. So this is not a drop-down for our shareholders yet. That will come as we grow and as we launch new products and get it that way. This is a way to pay for the reorganizations that I want to do for the return to growth approach.

Part of that, some obvious things. I think that Dentsply Sirona over the years has been a collection of acquisitions that were never integrated. And I think that we need to move into an integration phase. That would include rationalizing legal entities, creating common IT systems. Some of that is underway currently, but needs to be done at a different scope at a different rate. And also through support functions, creating centers of excellence so that we can actually use less people to address things faster in a more consistent way, which will free up money again for us to drive commercial and innovation over the long term. Also with supply chain, we have a lot of facilities. I think we can significantly reduce those. That will take some time, but we need to begin now in 2026 so that we can bear fruit probably in 2028 with that.

Finally, when you're looking at the customer first and you're driving your training and putting funds in for the commercial side, funding it through the middle of the P&L and getting results, we ought to deliver financial strength for our shareholders. And that would be developing capital allocation programs that I think can enhance shareholder return beyond what we have today. I'm working with the Board currently on that. I plan to bring that out as early as our upcoming earnings call in February, where we can actually come out with enhanced ways that I think will benefit the team.

I believe we need to improve free cash flow. I'm a big fan from my Globus days of the power of having cash and the freedom cash gives you to move and move quickly. And so I'm looking to actually not only do that, but one of the levers I'm looking to do is bring inventory down by about 20% from where it is. Of course, I want to do receivables and payables and make some improves there. But with cash, as you know, you can do some share repurchases, you can move on bolt-on acquisitions. It will give us a lot more freedom than I believe we have today with it. And while we have a decent cash flow, I think it can become a lot better through the items that I've laid out.

And then finally, just implementing a tax strategy to enhance shareholder returns. That's a very powerful way to do it. While we have several, they are disjointed and I have plans in place to create one that will actually marry up with our DS Core strategy, driving the connected dentistry as a main flow, which will open up opportunities for us to actually further optimize some of our tax structures and improve where they are today.

So it's a lot of talk that rather than doing promises my styles to actually demonstrate actions. I believe in doing actions that drive results are more powerful than saying where you're going to be someday in the future. So since the third quarter earnings call that we had, just some key things, and I won't read them all, but as we did announce today, we did sign on Benco. That's a new capital distributor for us. They have done disposables for us in the past. But again, we're opening the pathway. It's the first one out of the gate. We're excited to partner with them on this, see great opportunity with it. Yesterday, Mark Bezjak, we announced we'll actually run the U.S. organization under my Chief Commercial Officer. And Mark comes from Zimmer. He's got a great background of how to drive large and complex sales forces with multiple products. This is going to be a big add for us in our return to growth, our focus into how to drive the U.S.

The second part of that is the bullet right below it. We've aligned our U.S. commercial teams vertically, in other words, by segment, so we match the market. So, in the past, while we may have had reps that specialized, our area directors, our managers, our VPs were all specialists covering all -- generalists covering all of the areas. Now we have from top to bottom, one team that focuses only implants, a separate team that focus only on ortho, another team on endo, et cetera. And that's going to create focus. We'll create goals and incentive programs for all of them to go drive those businesses. But as we create that focus while investing in innovation to enhance DS Core for those other applications I mentioned, I feel like we're positioned to really drive it forward in a strong way.

As I mentioned, we implemented the transformation office as well to make the return to growth a reality, hold us accountable and get it done. And we mentioned as well that we appointed Don Zurbay. He was the former CEO of Patterson. He'll join our Board, and I think he'll be a great add to us because he not only brings in the dealer relationship, which we're strengthening and expanding, but he also brings a good voice of the dental market on to the Board of Directors. So I'm really excited to work with Don on this and utilize his knowledge not only to build our dealers deeper and better into who we are, but to also move faster in our turnaround plan using his experience.

And we also mentioned that we created a growth and value committee with the Board. And I'll just explain that quickly is we're in operations mode right now. We're executing a return to growth plan. I had mentioned on my earnings call that will take about 24 months. And while it becomes operational, I don't want to lose track of the strategic value that we can go do. So this committee will be looking at strategic moves. And what I mean by that is capital allocation, possible divestitures, possible acquisitions. debates about strategically where do we want to be. So when we do get back into a stronger position, we can pivot and move quickly and not lose track creating that from scratch in a few months from now or 24 months from now as I think we exit this turnaround plan that we have.

So, Lily, before we get up here, just to wrap up very simply. I just want to remind you, very highly attractive market, $33 billion TAM growing 3% to 4% a year. We really have a market-leading position with our integrated portfolio. The strength is really in the fact that we have all of these offerings and can offer them out to specialists, generalists or all the above and really are shaping the future of connected dentistry with what we have today and what we're investing to have in the near term to create the DS Core and realize it for all of our customers. And then finally, as I mentioned, moving with urgency in a return to growth plan so we can focus on broader things and better long-term sustained growth.

So, thank you. And Lily, I'm all yours.

Dan, you've been in the seat for a few months now. Can you talk a bit about what attracted you to the CEO role at Dentsply? And what from your prior experience do you think you can leverage the most to make change at the organization?

Yes, it's a great question, Lily. For me, like I said, it was really interesting. The brand strength really caught my attention. I thought that, that was a great thing to have. When I talk to dentists, the brand loyalty, as I mentioned, is amazing. And what I mean by that is -- when they talk about Dentsply Sirona, they say we and us, they don't say you. They sit there with me and say, what are we going to do? How can I help? What are we doing here? And so that really caught me as well when I did it that way.

When I learned what DS Core is and can be and shape it, you have all of these great materials that are stunning. At the same time, you have executional issues. We got to get out of our own way. We have to make tougher decisions. We have to move faster with more urgency. In other words, it's broken, it needs to be fixed, and I happen to like that part of that challenge. So I think what you have is great raw materials to work with. the need to change some things in an execution approach that's there.

From my past, it plays well with Globus when we did the acquisition of NuVasive and doubled our size, we had to do rapid integration under extreme competitive pressures, and we're able to do that successfully and drive that business. I'm looking to bring that experience, both what I did right and what I did wrong and fix that in a way here that can be meaningful.

You talked a lot about your return to growth pillars. It sounds like you've made a good amount of progress since you last updated us in the third quarter. How should we be measuring your performance over the next 12 to 24 months as you tackle these items?

Yes. I think there's some tangible measures, some that we share, some that we won't. So for example, onboarding of dealers, I think, is a great signal that our capital will be returning to health. And I think as you see these roll out over time, we'll say we've reestablished that. That's one that I think is measurable and something to see.

The verticalization of our sales force in the U.S. that I just talked about, while that may be slightly disruptive, should create a slowdown in the loss back to a breakeven to eventual growth. And I think we can measure that through the quarter sequentially to say, is that taking effect and where is it taking effect by business segment I think those two are readily measurable with that.

Our spending in clinic, which I think is vital. It's not something that will be public. I'm signaling that I'm doubling it and we'll go heavy in there. I'm not sure I'm going to report out how much we spend on that. It would just be one of those. In theory, when you do it and you create demand, then we should see a lift in sales. So ultimately, it's going to be the signing of dealers. It's going to be a change in the velocity of the company back to growth. And I think it's going to be from all of those factors I mentioned.

One of the announcements you guys released this week was the creation of the value -- the growth and value creation committee. It sounds like there will be a focus on capital allocation and portfolio management. You guys have a pretty broad portfolio in dental. So can you talk about how you feel about the state of the current portfolio, where you see any room for additions or subtractions when we can expect to see some of those changes?

Yes. And I think there's a couple of things, right? So what I do want to call out, the value and growth committee is not about how you divest assets. It's going to be about looking at a strategic look of where do we want to be three to five years from now. Like I said, a lot of us in the C-suite have a lot of execution to do right now in the next 12 to 24 months. And while I'll be active with that, shaping a strategy to the extent that's needed, I think I'm asking the Board with great Board experience to help me do that. So it's really more about where do we see the potential.

I personally want to actually get all of these business segments back to health, then we can decide, does this work well as an integrated portfolio? Does it flow through connected dentistry with our DS Core? And if the answer is no, it's better served to the shareholders and the businesses not to have it, then of course, we'll do the right thing. I happen to believe that we have the benefit to turn these back to health and actually add versus subtract. But also at the same time, I would tell you, other than small tuck-ins, I don't think we're in a position to do large acquisitions in the next 12 or 24 months. However, after that, with a strong cash flow and a deleveraged balance sheet, I think we should. And I'm not convinced that all of them or even any of them would be in dental.

Maybe we could dig a little bit deeper into the U.S. business. You talked about doing really well in some markets like EMEA, but the U.S. has struggled the last few quarters. So what specifically have you done over the last few months to turn around the U.S. business? And what -- how should we think about this business looking in 2026? Like is this a business that looks like what we saw in the third quarter? Or do you think we could see some improvements in the near term?

Yes, it's a great question. So we've done a lot. So I've been five months. I brought Aldo in as Chief Commercial Officer about three months ago. We actually centralized all of commercial operations, all of activity under him again to move faster in a consistent way. At the same time, we had a different customer service and tech service group. Tech service handles your capital equipment, customer service, your customers. We brought them under one leadership so that they can actually work in a really good fashion together and no longer have a handoff, which is disruptive to our customers, which is a complaint I heard from customers. Further, that team will actually enhance how we work with dealers because sometimes you're actually servicing a customer through a dealer, and there were gaps in the past.

So I feel like those structures have closed those off. The verticalization will create a focus. The enhanced education yet to happen, both for reps and Clin Ed will further bring that into it. As you look at 2026, I would love to tell you we're going to turn first quarter and off we go. But in the reality, if you think about capital, even as we sign these dealers, we need to train them, then they need to go get a pipeline, then they need to go execute that.

So to me, the second half of 2026, I should see the lift of dealer adds I think from spending on Clin Ed in the first half, again, I'd want to see more proactive or some increases of business in the second half. So my thought to you would be, I think we need to change momentum over the next couple of quarters. I want to see sequential improvements in the second half of '26. I'll venture so far to say for me, I'd like to see a plus sign on the sales in the fourth quarter, and I want to get into market growth at least in 2027. That's something I have to go execute. It's a stretch, but it's possible.

Yes. Those comments on sequential improvements and positive growth in the fourth quarter, does that apply to the company more broadly? Or is that specific to the U.S.

I would say the company more broadly only because of the size of the U.S. So again, Europe is actually tracking and doing well and gaining momentum. I'd want to see that carry forward. It's really my focus is, as I said, don't mess with that. It's working well. It's really getting the U.S. from the negative to a breakeven to a positive in which will lift the entire company.

Maybe we could talk a little bit more about the broader dental market. What have you been seeing in terms of demand and consumption trends across capital and consumables? And how has that trended exiting 2025?

Yes. I mean, obviously, like anything you've heard from other companies, I mean, higher interest rates slow down capital purchases, uncertain economics can certainly put doubt in a consumer's need for an elective approach. All of those matter and all of those will change. I would answer it differently. Macro trends are out there and they're important, but we have a long way to go to return to health. And so our issue is internal, improving who we are to get to market growth first. Then we can worry about are the interest rates high or is consumer concern there.

So I think for me, regardless of what's happening with the market, we have a pathway that we should return to health and grow. And quite frankly, even when we're in the market, we should grow at or above regardless of what the market does.

How much does that return to growth in the fourth quarter rest on an improvement in the underlying dental market?

Nothing.

Nothing. Anything you'd call out in terms of notable products in 2026 that we should be keeping an eye on or...

Yes, it's a great question. I've certainly beaten DS Core, right, as my big plug in commercial there. I don't want to signal that we're only a software company. That's not it. It's just the ability for us to actually streamline the providers' thing and actually reduce their training needs and their complexities. That excites me because I think that DS Core is the linkage of all of the products that we currently have in go.

I would say right now, the additional applications in DS Core are probably the ones I want to focus on with it more than implantable products.

Maybe we can shift gears and talk about Wellspect for a second. You did a strategic review of the business last year, decided to keep it under the Dentsply family. So how should we be thinking about this business and your approach to it in 2026? There's a lot going on in dental. How big of a focus from a spend and innovation standpoint is Wellspect?

Yes, it's a great question. So I'll start with that. The dental team and the Wellspect team are separated completely. There's not this interaction. The team who are my direct reports on dental to knock it each day and debate should I be doing Wellspect or dental. And so that is not a drain on our ability to actually go execute at all with it.

The reason that I retained Wellspect was we did put it out for bid and the bid was significantly below the intrinsic value. And not only was that a concern for me of giving away value that wasn't realized, it would have triggered debt covenants that required significant cash payments. And in addition, Wellspect delivers 40%, that's 4-0 percent of our annual cash flow. pulling that out in the middle of a turnaround was not the right move for an undervalued sale that would have actually resulted in an overall cash loss.

So what I did is I have funded that independently of dental. We're actually setting up an independent Board, so it's not even in the Dentsply Sirona Board with that. We're going to let it run that way. And I've pulled out most of the support departments to have them stand-alone so that it can be functioning by itself.

Now as that continues to grow and add value, that will be great in the future if it is not a fit and it's better served for others to divest and we'll do that.

Maybe shifting gears a little bit to the P&L. You highlighted an increase in R&D spend over the last few years or over the coming years. I just want to clarify, I know 6% to 7% of revenue is a figure that's been thrown around, which would be a pretty significant step up. So what do you see as a good target for R&D as a percentage of sales?

Yes, it's a great question. There's a couple of things out there now. So we spend $150 million a year. It's about 4% of sales, but it's also what's reported on the P&L because we're software driven, there is a fair amount that is actually capitalized on the balance sheet. So if you look from a cash basis today, we're actually spending 5% of our funds on R&D. 1% gets up on the balance sheet and amortized over time, the rest is there.

There is no magic number. You want to be able to flex it. But if I were giving you a magic number, I would like to get it to about 6% on the P&L. That would be roughly 7% selling from a cash basis. So I'm looking to increase this from this current 4% to 6% by effectively executing this return to growth plan, generating sales, creating the funds to go do that.

You talked about double-digit increase in spend over the next few years. Where are those increase in dollars going from a product standpoint?

Well, that's what I was talking about with the double digit is in R&D itself. And so what I'd do is I'd like to increase that up from the 4% to the 6%, which is probably almost a $50 million increase over the next 24 months. But that comes from the middle of the P&L, synergies in IT, finance, HR, legal, common systems, rationalizing legal entities, streamlining production facilities.

So what products or areas of the business do you see as priorities for investment? And where are those additional R&D dollars going?

Yes. So a couple of things. Like I said, the fact that we can build out our DS Core platform is key. And when you say, which ones do you want to do, the fact that we under-index in implants and ortho, that's why they're the main focus. We have really solid products with our implants. We have great products to offer with SureSmile, both robotically bent wires and others.

Bringing and modernizing that orthodontic software and getting deeper with the ortho team is probably one of the top priorities, but also flexing the muscles we have with our implants, standardizing and making sure the education is known of what we offer. Those -- that's where most of our investments are going.

Shifting elsewhere in the P&L. You've sized your tariff exposure is $80 million gross on an annual basis. So how have mitigation efforts progressed relative to your expectations? And how should we think about your ability to offset that $80 million?

So a couple of things. So you're right, it was $80 million that was put out there. If we look today, we've done several different things. One is obviously looking at the existing transfer pricing and how we're approaching that and how we should be approaching that in a new environment. That in itself can create some relief naturally. There has been some release from just changes in Swiss rates and things like that from when we had initially put that out there. We have taken some price, and we plan to take some additional price strategically in this area.

And what I think is that $80 million gross number in today's dollars, I probably have down below $40 million. I have to finish up the '26 plan, get it approved by my Board. But I would think that, that's probably closer to $35 million to $40 million of exposure today if we're successful in getting these things done.

Touching on some below-the-line items. Interest expense has bounced around quite a bit. Any color on how we should be thinking about that in 2026? Similarly, tax has stepped up quite a bit. What is a more normalized tax rate look like for you? And when can we get there?

Right. So, two questions. The first one is I think the interest rate was a back and forth with what we were doing with temporary credits to buy things and to pay off debt to move around. I think we'll stabilize that at a consistent rate in 2026. I would actually like to, through capital allocation, retire debt and deleverage not only from growing EBITDA, but also paying down and not replenishing debt. I'm not sure how much of that will be done in '26, but certainly in '27, I want to see lifts along those ways.

The increased tax rate back to talking about transfer pricing was really a matter of shifting profit from the U.S. into other jurisdictions and actually not having enough profit to use your carryforward losses. So an adjustment of transfer pricing itself as technical as we want to be, will shift some of the profit allocation that can trigger these, which will actually lower your tax rate.

I'm actually not concerned about that. I won't tell you the going-forward rate that I plan because I have to get it approved and reviewed back to the structure that I was talking about in my presentation. But I would say a 26% to a 28% tax rate in '26 is probably realistic, and I want to get below that as we stabilize, bring in new tax structures and drop that down. I don't have a carryforward rate yet, but it's certainly that 25% or less is my target.

One last question in the minute that we have here. Any updates on the CFO search and the profile that you're looking for to support the return to growth plan that you outlined?

Yes,. So you saw everything I'm looking to do in the return to growth plan. I want someone with experience in that. And Matt was not a bad guy with that. He didn't have the depth of experience I need to do this at the time and urgency in which I want to do it. I had begun some of the searches. Unfortunately, they didn't turn out. And so post this conference, I'm going to go full bore. I would think that by June, we probably have the capability of finding someone if this works out.

The good news is the appointment of Mike Pomeroy with a GE background and large company flow, both in public and private, -- he's a great interim ad. And so he's actually removed the pressure for me to actually move quickly. I want to be very selective. I want a CFO who knows manufacturing and transfer pricing and reorganization that can free up these funds so we can realize our commercial potential.

Great. Well, we're just about out of time with that. So we'll wrap it up there. Thanks so much, Dan.

Thank you, Lily.

Thank you for joining, and thanks, everyone, for listening.

Thank you. Bye.

Good day, and thank you for standing by. Welcome to the Q3 2025 Dentsply Sirona 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 morning, everyone. Welcome to the DENTSPLY SIRONA's Third Quarter 2025 Earnings Call.

Joining me for today's call is Dan Scavilla, President and Chief Executive 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.

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 enhanced transparency regarding key metrics utilized by management and 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 morning, everyone.

Let's start with Slide 3. I recently completed my first 90 days as CEO of Dentsply Sirona. During my first week at the company, we held the Q2 '25 earnings call. where I shared my listen, learn, lead approach, along with my initial thoughts on the organization's focus areas. Since then, I've continued to assess DS through meetings with customers, partners and employees, where I've been learning our strengths and areas of improvement. These discussions have helped validate initial observations, gain alignment with my leadership team and shape our Return to Growth action plans to improve performance and deliver sustained profitable growth over the next 24 months.

This plan requires us to go deeper, move faster and be bolder to reshape and improve the customer experience. I believe the potential for Dentsply Sirona has never been greater, and we have at our fingertips what we need to achieve this. First, I'll discuss our Q3 '25 results and full year outlook. Then I'll share a deep review of our Return to Growth action plan and its 4 key pillars.

Before I begin, I want to note that as announced in this morning's press release, Matt Garth, our Chief Financial Officer, has departed the company. This action is not the result of any dispute, disagreement or financial reporting matter. Matt was not the right fit for me and where I plan to take the enterprise in the finance organization. He is a talented [indiscernible], and we wish him the very best. A transition plan is in place to ensure continuity and that we maintain financial discipline as we select the right leader to join us driving Dentsply Sirona forward.

Moving to Slide 4. Let's discuss our quarterly financial results. For Q3 '25, global sales were $904 million, decreasing 5% as reported or negative 8% on a constant currency basis. Excluding the Byte impact, sales declined 5%. And as disclosed in last year's Q3 earnings call, Q3 '24 included a $24 million onetime dealer prebuy in advance of the U.S. ERP implementation. Adjusting for this onetime headwind, Q3 '25 sales on a constant currency basis were down 2.5%.

Adjusted EBITDA was 18.4%, up 50 basis points versus prior year driven by lower sales on favorable product and geography mix and tariff impacts that negatively impacted gross profit. This was offset by reduced spending in OpEx. Non-GAAP earnings per share was $0.37, down $0.13 versus prior year. Approximately half the EPS decline reflects the impacts of sales mix and tariffs on gross profit, with the remaining half driven by higher non-GAAP tax rates in the quarter of 32% versus 16% last year. This is due to shifts in profit between the U.S. and international markets.

Q3 cash from operations was $79 million and ending cash balance was $363 million. We recorded a $263 million noncash after-tax charge related to the impairment of goodwill and intangible assets. These impairments were driven by the impacts of tariffs and lower projected volumes of equipment, implants and prosthetic products, particularly in the U.S.

In the third quarter, Dentsply Sirona returned $32 million to shareholders through dividends with $96 million returned to shareholders through dividends year-to-date.

Now moving to Slide 5. For Q3 results from a regional perspective, U.S. sales were $291 million, down 22.2% versus prior year, driven by lower sales throughout Essential Dental Solutions, ad camp, imaging and implants, partially offset by strong performance in treatment centers and in healthcare, our Wellspect business, which delivered 22.3% growth. Adjusting for the Byte impact and the onetime $24 million prior year, U.S. sales were down 9.7%.

European sales were $382 million, increasing 9.9% as reported or 2.6% on a constant currency basis driven by growth in Connected Technology Solutions and labs, partially offset by softness in Restorative. The U.K., France, Italy and Spain had strong constant currency growth, partially offset by lower sales in Switzerland. Germany sales were flat in Q3 versus prior year. Wellspect sales grew 5.3% in Europe on a constant currency basis.

Rest of World sales were $231 million, down slightly versus prior year, with strength in Essential Dental Solutions, offset by declines in Connected Technology Solutions and Implants. Strength in Australia and India were offset by softness in Japan. Wellspect grew 87.3% off a small base in Q3.

Now turning to Slide 6 for our business segment results. CTS sales on a constant currency basis decreased 7% versus prior year, Equipment and Instruments increased by low single digits, reflecting growth of imaging in Europe and rest of world and growth of treatment centers across all 3 regions, partially offset by a decline in imaging in the U.S. E&I growth was offset by a double-digit decline from CAD/CAM in the U.S. and Rest of World.

Distributor inventory levels for both CAD/CAM and imaging products remain below our historical averages.

Moving to EDS, which includes Endo, Resto and Preventative products. Sales on a constant currency basis decreased 6.2%, with the decline entirely attributed to the previously described dealer prebuy. Shifting to OIS. Sales in constant currency declined 17.1%. Excluding the Byte impact, OIS sales were down 5.8%. In Ortho, SureSmile declined low single digits in the quarter as we saw softness in the U.S. market, partially offset by growth in Europe and Rest of World.

IPS declined mid-single digits in the quarter, driven by lower implant volumes in the U.S. and China. We saw a slowdown in the activity in the Chinese market in anticipation of the implementation of the second phase of the VBP program. In Europe, IPS increased slightly.

Wrapping up our segment results. Sales in constant currency for Wellspect Healthcare increased 9.3% as we saw growth across all 3 regions.

Now I'd like to discuss the outlook for the remainder of 2025 on Slide 7. The company is revising its 2025 outlook based on the results of the third quarter, tariff impacts and targeted investments we've already begun making in key areas to accelerate growth momentum in 2026. The revised outlook includes net sales in the range of $3.6 billion to $3.7 billion, and constant currency sales are expected to be in the range of negative 5% to negative 4% year-over-year. Adjusted EPS is expected to be approximately $1.60.

Now on Slide 8, I'd like to look forward and discuss our detailed Return to Growth action plans designed to improve performance and deliver sustained profitable growth over the next 24 months. This will be achieved by going deeper, moving faster and being bolder, and based on 4 pillars: Putting customers at our center, reigniting the U.S. business to win, empowering people to power performance and evolving operations to fuel innovation. I will now discuss the actions we will take in each pillar.

Putting customers at the center. What I've learned in my first 90 days is when our businesses where the customer is at the center of everything we do, we win. I know that may seem obvious. But one of the reasons we're not growing as an enterprise is that we have some parts of the company where we can serve the customer far more effectively. By putting the customer at the center of everything we do, every employee and every team at Dentsply Sirona now starts with a mindset of delivering a better, more positive, easy to do business with, customer experience to earn their share and loyalty.

The customers defined as any practitioner who uses our products regardless if they purchase directly, through a DSO or a dealer. They're our customers, and we will partner with DSOs and dealers to deliver the timely, consistent support they need. We will achieve this by creating a global customer service and technical service organization that delivers high-quality support broad wide while maintaining the agility needed to meet local market needs. We will also enhance our support for customers and our field-based employees through simplifying interactions, speed of response and increased strategic investments. The field is and will become even more so a strength of our company, the tip of our spear.

Reigniting the U.S. business to win.

Second, we're making the return to health of our U.S. business a top priority with a comprehensive plan to reignite growth and strengthen our commercial foundation. Under the leadership of Aldo Denti, our new Chief Commercial Officer, we're aligning our teams, accelerating decision-making and positioning Dentsply Sirona to compete and win with greater speed and focus. Here are specific actions we're taking to drive this plan forward, many of which are already underway, including organizing our commercial teams to better reflect the requirements of the market with the aim of enabling improved coordination, clear strategic focus and stronger competitiveness supported by defined decision-making processes, performance indicators and accountability frameworks.

As mentioned before, combining customer service and technical service into a single globally led team under experienced leadership to improve the customer experience and strengthen coordination with our dealer partners. Pursuing a multichannel approach to retain direct sales in specialty areas while reengaging and expanding our network of U.S. dealer partners in CTS to accelerate market penetration. We're also aligning with DSOs by offering simpler or more comprehensive support, such as all-in-one de novo offerings, which leverages the breadth of our portfolio.

Investing in our sales team to fill open rep positions, expand coverage and deploy growth-based compensation and retention tools to better serve existing customers and acquire new ones. Increasing our investment in clinical education for dental professionals, focusing on advanced training areas like connected dentistry and single-visit care. At the same time, we're strengthening our sales training to better reflect the needs of dental offices, giving our teams a deeper understanding of practice workflows and the tools to deliver tailored solutions that improve both clinical and operational outcomes.

The initiatives outlined are focused on North America, but have clear applicability across the EMEA and Asia Pac. We plan to increase regional investments in 2026 to accelerate growth. At the same time, we're exploring new go-to-market models in Asia Pac to strengthen CTS market penetration in Japan and refining our strategy in China. As the U.S. business gains momentum, we will strategically shift additional investments towards EMEA and Asia Pac.

Empowering people to power performance. To lead Dentsply Sirona through this turnaround, we're strengthening our organizational foundation to empower our people to power performance. Our teams need the right tools, systems and information to operate effectively, supported by greater automation and clearer priorities with aligned leadership and bringing new expertise where needed to accelerate our progress. This balanced approach leverages the strength of our existing organization and complements them with leaders who have deep experience in global transformations, sustained growth and consistent financial performance.

With our finance organization, we're taking steps to elevate capabilities while ensuring continuity as we identify the right long-term financial leader for DENTSPLY SIRONA. As I shared at the top of the call, Matt Garth has departed the organization and a transition plan is in place to ensure continuity and maintain financial discipline. A search for his successor, led by [indiscernible], is underway. During this interim period, Board member, Leslie Veron, former Chief Financial Officer of Zerex Corporation, will provide governance and oversight of the finance organization in her capacity as Audit and Finance Committee Chair.

In our commercial organization, we're sharpening our focus on the customer experience and market competitiveness. Under the leadership of Chief Commercial Officer, Aldo Denti, we're strengthening execution in North America and rebuilding the U.S. commercial leadership structure. This includes a search for a new U.S. VP of sales and broader efforts to deepen partnerships, improve service delivery, drive customer loyalty. Coming from a distinguished career at Johnson & Johnson and given Aldo's experience in the orthopedic industry, he knows how to fix customer experience and to enhance our approach in competitive and evolving markets.

We've also established a transformation office responsible for oversight of our Return to Growth Plan. This office will advance our enterprise AI and automation strategy, fundamentally improving how we work. To lead this critical effort, Dustin Shields has been appointed Chief Transformation Officer joining Dentsply Sirona in December. Dustin brings extensive global experience in commercial and operational functions, integrations and business optimization, most recently Aklovus Medical. Under his leadership, the transformation office will focus on delivering cross-functional improvements that enhance efficiency, agility and long-term value creation.

We've also appointed a leader of digital transformation who will lead the integration of AI across our operations to increase speed, strengthen data-driven decision-making and improve the effectiveness of this of our support functions, involving operations to fuel innovation. With a commercial organization more closely aligned to customer needs and improve product development processes, we'll focus our investments on innovation that help clinicians enhance care, streamline workflows and grow their practices.

In parallel, we'll continue to increase and accelerate R&D investments to improve the health of our commercial engine. We're also taking steps to enable our supply chain to move faster and go deeper than before to create stronger, more profitable and scalable manufacturing and distribution network, building on the ongoing work of the supply chain transformation team. This includes a plan to enhance operational efficiencies through resource consolidation, standardized packaging and establish more advanced planning and forecasting to favorably impact working capital and product costs.

We need to further streamline our support department cost structures to optimize resources, processes and systems to reach benchmark efficiency levels, reduce complexity and release capital to be redeployed into our commercial and innovation priorities. This will be accomplished by implementing common processes, common systems and establishing regional support centers. This will include a significant reduction in legal entities and the continued implementation of SAP as our global ERP system.

We plan on deleveraging the business through profitable growth and disciplined execution to drive improved EBITDA, working capital and cash flow to support future capital needs, debt reduction and shareholder returns. The Wellspect business will be a key role in achieving our financial goals. As previously announced, following an evaluation of strategic alternatives for Wellspect, we determined that retaining the business will deliver greater financial and strategic benefit to shareholders than the other options available.

Specifically, keeping the business as part of our portfolio allows us to realize previous investments not yet monetized while benefiting from the strong cash flow generation and preserving optionality for future growth beyond dental. As evidenced by our recent results, we know how to penetrate this market and grow this business.

Moving to Slide 9. In summary, we made progress over the past 2 years in footprint consolidation, SKU rationalization and resource streamlining. We need to move faster and act bolder to reshape the customer experience and strengthen our competitiveness in the dental market. I'm continuing to work through my onboarding to better understand the complete enterprise and market to set the appropriate financial targets, but we expect to be able to free up additional capital in our operational structure and products while reaching benchmark levels in our support functions and improve rep effectiveness.

Accomplishing this will free up capital to invest in additional field-based resources, increased rep and clinical education and higher levels of investment and innovation to drive growth and shareholder returns.

I'll end my formal remarks with a statement I opened with. I believe the potential for Dentsply Sirona has never been greater. I recognize that the company has undergone change over the last few years. The change has not been fast enough for you or the Dentsply Board. That is why I stepped into the seat at their request. It's time for bold change, and we're entering a new era for DENTSPLY SIRONA, one that's rooted in discipline, ownership, acting with urgency and a mandate to deliver results. Our Board of Directors and my leadership team believe deeply in our ability to reposition Dentsply Sirona as the market leader once was and will be again.

We're committed to doing the work necessary to get there, even if it means making tough decisions. I couldn't be up for this more than anything in my life. I'm excited to do this and drive forward with this making changes. I look forward to keeping you up to date on our progress, and I'm committed to communicating with you in a direct and transparent manner, every step of the way.

Thank you. We will now open the call for questions.

[Operator Instructions] Our first question is from Elizabeth Anderson with Evercore ISI.

I was wondering if you could maybe talk a little bit more about the U.S. market. I think based on what you put in the slide ex the onetime items, it looks like it's still down about 10% year-over-year. So could you just sort of talk about where that is? Is that a result of the sales situation? Is it a lingering impact of the sort of Patterson situation? Just a little bit more color on what you see driving those shorter-term results would be very helpful.

Thanks, Elizabeth. I think it's really a list of many things. What I'm going to say is, our focus in the U.S. from our structure and how we go at that competitively is one thing throughout the products. I think it's the relationships with the dealers that we need to make a move on, honestly getting deeper with the DSOs and more meaningful strategies. Many of these things all come together. It's not just one area. I really think it's more about our structural approach and our execution in the U.S. market and how we, as an organization, can give our team the better tools to do that throughout the portfolio in a better way. That's really what the return to health plan is about, is addressing what I see as shortcomings that we can allow to continue and drive improvement in each one of these segments with a deeper focus through structure and funding.

Our next question is from David Saxon with Needham & Company.

So I just wanted to ask on this returning to profitable growth kind of framework over the next 24 months. I guess, how should we think about the cadence of getting to growth over that 2-year period? Is that kind of -- should we think about flat next year or any guardrails around 2026 growth? And then just in terms of that target of growth, like is that absolute growth or is that market growth? Would love just some more color there.

David, I appreciate the question. Listen, my desire is to return to growth tomorrow. I would say don't model that just yet. What I do need is a little more time. We're going through the 2026 plan now and I'm really working with every department in every country to do this with the team. So give me a little bit of time to come back at this. I will tell you, it's not a January 1, everything is rosy, but it sure can't be that you're exiting the year the same way. And so how we'd lay out those sequential improvements, I need a little more time to refine, but I require that we have sequential improvements as we get through the year. I just need more time to figure out what I can tell you with confidence when they begin at what secton of next year.

Okay. And then just in terms of capital allocation. I believe you talked about deleveraging in the script. So can you just remind us your philosophy around capital allocation and specifically on the dividend, like how important is that? Are there areas in other parts of the business or mechanics that you could direct that cash?

Yes, you got it, David. And listen, I think that is a legitimate question. I think discussing dividend and its value is something we need to explore further with the Board and with the shareholders to understand how important is that in adding shareholder value and where could that be used differently. The main tool of deleveraging isn't buying down the shares. We're actually retiring debt. To me, it's about growing the business first through the U.S. and then consistently through the rest of the world, to raise EBITDA so that your ratio changes. I really think it's more about growing that piece of it, the denominator, if you will, that is the health of this. And yes, with that, comes better profit, better cash flow which we then can and will, at some point, redeploy into debt retirement and when needed, share repurchase.

Our next question is from Jon Block with Stifle.

It's Jordan Bernstein on for Jon. Just on the R&D aspect of the return to growth action plan. You heard some recent comments from you about trying to take that number up and accelerating investments in R&D. Just if you could talk through that dynamic? And is that a multiyear type of acceleration and where your heads are at for the R&D organization?

Yes. Great question, Jordan. So a couple of thoughts here. One of the reasons I'm adjusting down EBITDA now for this year is we are pulling forward millions of dollars of R&D investment into the fourth quarter that will help us position better strength in '26 and beyond. And so we are beginning that. I would like to get up to the right benchmark. I know we've always talked around 6% to 7%. We'll evaluate that. It's probably a likely thing. I'm not sure we can get there in one fell swoop. I am looking at that now. And while I have the desire and we will increase the investment in R&D, I'm also going to look deeper with the R&D leadership to make sure we're spending it efficiently and that we are spreading it out to make sure that we mitigate risk.

So there's a couple of steps there as well of are we really spending the dollars we have today in the best way. And then once we have that in a good spot, how do we increase it in a way that maximizes the output for the market and for the shareholders.

Our next question is from Jeff Johnson with Baird.

Dan, maybe I could just follow up and stay on the track you were just on, on the R&D side and really the OpEx side. If I look at the guidance takedown for this year, I mean, no real surprise to see a new CEO come in and kind of flush the current year out, and I think all that makes sense, but it looks like maybe your OpEx spending R&D included going up maybe $50 million in the back half of this year to kind of get to that new guidance range. Is that something we should think about as $50 million in the second half of this year up and so we carry that over to another $100 million next year just to annualize that? Is that the new run rate spend? And if it is, I know you're nowhere close to talking about 2026 at this point, but the Street is hanging out at like 16% EBIT margin feels like to me, if you have to take OpEx spend up 2 to 3 points, maybe we should sharpen our pencils on that 16% op margin?

Yes, Jeff, again, I appreciate that, too. And like I said, let me wrestle through 2026 with the team and see the real thing I'm doing right now is taking a loan to increase investments so that as we go forward and we find efficiencies, we can actually make it self-funding. So I don't think it's a new add-on top thing. I'd say, I'm going to pull some money up now, get this engine running. And as we find efficiencies and redeploy it, I'm going to expect to see decreases over time in those OpEx numbers with an increase in EBITDA. But again, to jump started, I'm going to pull down, as you just said, some EPS, invest it in the right areas so that we can start delivering these efficiencies I've talked about as we get through 2026 and into 2027.

All right. Fair enough. And I've been jumping between calls, so if you asked us to hold the one call or question, I apologize. But I'd like to hear on the European market. I don't know if you're still doing some of the surveys that your predecessor was doing. But some of our checks, and I think even if we look at 2Q results from some of the manufacturers and the dealers out there, it seems like the European dental market has maybe gotten back on a little bit better footing and really even the international market ex Canada. So I would love to just kind of hear your overall arching view of the international markets at this point, market more so even than your performance in the quarter.

You got it. So a couple of things. We do our surveys every 6 months. We didn't do it for the third quarter with that. But nonetheless, we didn't see any drastic shifts from where we had done before and anecdotally as I was out in the field and talking with people, a few people said it was a slowdown, a few people said it speed up. So I'm going to kind of call it as kind of normal and nothing changed. The European side is interesting because while I do think it may be improving, I think the credit of the growth in Europe really goes to our leadership team. I think the person leading it is a fantastic leader who has done a great job organizing the resources cross functionally and driving growth.

I think the cadence is improving. And I really think it's more about the approach that team has taken, which, to be honest with, I'm looking at as applicable to the U.S. and is pretty much included in these points I laid out.

Therese, we can move to the next one, if we're not hearing the question right now.

Our next question is from Erin Wright with Morgan Stanley.

How are you thinking about your relationship with distributors? I think you talked a little bit about kind of supply chain in your prepared remarks. But how does this intertwined with some of your strategies around Return to Growth and profitable growth? And are you entertaining more of a hybrid approach or not? What makes sense over the longer term? And I'm sure there's still stuff that's up in the air, but I'm curious your view right now as it stands.

Yes. Thanks, Erin. Listen, I think like many people in the market, we need to look at this with open eyes, and I think there's several ways to get there. In my prepared remarks, I called out a multichannel approach. And so what I am signaling is, we have direct businesses, and we intend to keep those and go more direct in those areas and support them holistically. Anything with our disposables that we use, I'm saying, I think that's fine. I'm not looking to make any meaningful shifts there and keep those alone.

But reengaging with dealers, shine at Patterson, when I say that, and new dealers, which I won't call out at this point, so that we have a broader reach and more presence, I see that as the model that we need to use to go forward. I have personally spoken with all of the CEOs. We have these in play. I'm not going to comment further on that because they're all at several different stages of maturity with where we can line in or not. But I would envision us next year having that locked in, in a way that is beneficial for everybody.

Our next question is from Vik Chopra with WF.

A couple of questions for me. So on this Return to Growth action plan, Dan, I appreciate it's early, but can you just talk about some of the key milestones that you will use to measure success for each of the pillars? And then I have a follow-up, please.

Yes. Vik, you got it. So let's start with the -- obviously, a focus on the U.S. market there. I'm really setting out metrics, which are obviously going to be stabilizing sales and then returning into growth over some period of time. It's going to be one of the key metrics. Doing that by actually hiring out and retaining reps is going to be a key one. The rate of training we do for not only the rest but our clinical partners as well will be another key metric through these investments.

So as we start training more and seeing more of both the field and the dentist that's going to be key. Holding on to them is going to be key. Seeing the sales turnover as a result of that is going to be one of the major moves that I see. And I didn't mention this in my prepared remarks, but having a stronger presence in universities and teaching institutions is a focal point as well to create those long-term seeds. And now while we're there currently again, we need to go deeper there and be more present to create that longer-term health. That's really one of the things.

I've already called out what's almost finished when it comes to the organizational build to supplement a great team with even stronger talent that's out there that way. I think with the supply chain and operations, there's really a couple of measures there. We're going to see a lift in gross profit naturally as we get through these things. And certainly moving facilities or people and all that take a longer term, that doesn't pop within a quarter.

With the R&D, we'll see it as a percent of sale and product launches. So I think they're really the main ones, right? If we know how to free up cash and we see changes where we can redeploy this. We watch the sales stabilize and grow. And as a result of that, we see the profit lift through our customer experience. I think they are the ones that I'm trying to wrap around now, make sure the team is aligned with that in a simplified way, so we know how to react faster and move and address these as needed.

Great. I appreciate the color. And a quick follow-up question. You recently appointed Aldo Denti as your Chief Commercial Officer. Just curious to get your early thoughts and what impact do you expect him to make over the coming months?

Yes. Thanks, Vik. So Alto is honestly a great one. I had the opportunity to work with him side by side when we were in Johnson & Johnson Vision Care. And that company needed a turnaround. And we had come in with several people, and we're all part of bringing that back to the strength that it had. And he was driving force of that in the commercial side of that coming in. Again, his role in Orthopedics in J&J, which is no small task running that really had a lot of activity. So bringing that strength and that experience with a known person to come side-by-side with me is really important to me.

I think that his drive to actually create a focused, trained and well-resourced commercial team is going to be one of the keys here. I think that his professional approach out with dealers and DSOs will be a lift for us. I think, again, he's a main ingredient.

Our next question is from Michael Cherny of Leerink Partners.

This is Aham Mohammad on for Michael Cherny. I appreciate color on the Return to Growth action plan and fully understand that FY '26 planning is still underway. But if you think about things bigger picture, which areas of your business do you think are best positioned to start stabilizing growth both from a competitive and innovative standpoint?

Yes, it's a good question, and my easy answer is all of them. But at the end of the day, each one of these requires a different approach. So the CTS move is more about getting the dealers lined up, trained and out with us. I think the biggest part of changing both customer service and technical service under one team and one focus be a major lift in not only the ongoing customer experience, but new customers through the implementation of capital and training. And so those things are going to be one of the big return to health type of items.

I think setting up implant strategies and how we can get the right training and the right holistic approach and using DS core as one of the drivers of that will be a major thing to go through. And while strong in EDS, making sure that we continue to have the right investments in the right training with those type of things throughout EBS are all going to be key to actually lifting them up. So really, if you ask me is 1 more important than the other, the answer is no. That's the benefit of having a diverse portfolio, and it's well balanced, but they all require different approaches, and they're all addressed in this plan.

Our next question is from Michael Sarcone with Jefferies.

I'll ask my two upfront. Just first, can you talk about the characteristics you're looking for in a new CFO? And then just related to that, Dan, I guess, how do you think about your guidance philosophy right now? And do you expect that may change as you bring on a new CFO?

Michael, good question. Looking for main attributes of CFO, and I'm not saying that the person before didn't have these, but what I really need right now is a person who can dig down into the data and get the meaningful metrics that we need. And then in a consistent fashion, communicate those and educate the team to follow those to go. Right now, we have plenty of data, but how we use it isn't the best way. And so I really need someone to harness all of that power to create the focus we need, to show the metrics and driving this return to health thing. That's first and foremost.

An enterprise leader right now, who has deep experience throughout so that they can look at this and work with all of us to guide us through and help us do it, it's going to be one of the key factors that are out there. So it's kind of both, a broad person with a lot of strategy who can dig very deep and use numbers and make sure that everyone understands and follows along, communication is going to be key.

Guidance strategy, I would say, look, where I came from, I'm going to follow that when we get this back to health, right? It's one of those ones where we put out conservative estimates with the goal to beat and raise as we go forward. demonstrating a cadence of sustained profitable growth. That's ultimately where I want to get to. I don't think that would change with a CFO coming in. I think that's got to be the mantra of this company going forward. We need the right person to fit that approach.

The next question is from Allen Lutz with Bank of America.

Dan, you mentioned a lot of different investment areas in your prepared remarks, global customer service and technical service organizations, clinical education, shifts in regional spending. I would think that not all of that spending is going to take place in the fourth quarter. Can you talk about what you are spending money on in the fourth quarter? And maybe what we should expect to start in 2026?

Yes, it's a great question, and thanks for it. So listen, there's a couple of things, and I won't lay out every single put and take here for you, but there are big moves that we need to make contractually to free up some of the things that we have done historically that don't make sense these days. Some of those will involve some penalties that we're going to pay in the fourth quarter to create freedom to free up cash as early as the first quarter. So I'm taking a few hits to free up some strategic moves that allow us to go into that right away into next year.

In the fourth quarter, there is an acceleration of R&D that I have set up to go. And while we don't have the execution of clinical education, establishing those programs and putting in place anything that we can do for that is there. So what I would tell you is some acceleration in R&D, a little bit of prep work in the clinical side. You mentioned customer service, tech service, that probably won't have an impact in the fourth quarter because they are existing people we are reorganizing. And we're beginning to recruit, but most likely will be negligible in the fourth quarter, more prominent by the first half of the year is really where I'm going with that.

Our next question is from Brandon Vazquez with William Baird.

I just want to ask kind of a high-level question on kind of the initiatives you laid out here. Obviously, encouraging to see kind of an action plan here. But the story has been a bit of a -- it will be -- this is my phrase, maybe not yours, but the story under the prior management team has been a turnaround story. And then a little bit now, it looks like, once again, again my phrase, a bit of a turnaround story again. Many of the initiatives here feel like ones that we've been focused on for years, frankly, like getting closer to the customers and supporting them, improving efficiencies. So I guess what would be helpful is can you just talk a little bit at a high level about what of these initiatives do you think are incremental to what has been attempted to turn things around at DENTSPLY SIRONA in the past couple of years that you think will start to eventually lead to some more durable improvements?

Yes. I think that is a great question. And so I'll give you a couple of thoughts, right? There is no doubt that the customers, the employees and the Board are tired, right? There's fatigue coming through with these words and not quite getting where we need to go. My assessment would be, while there are many right things that were done in the past, I feel like we were trimming branches when we should be cutting down trees. So when I talk about going faster, bolder, deeper, I think that's really what I mean with that.

And a lot of these things were in the right move, but not deep enough to go. And I think Aldo and Dustin and I have experience in these that we can bring in. But I don't know, was there as strongly as before. Now there's great folks on the team who are already in place. But I think the real thing is to drive deeper and push there. And it is a turnaround story. And the goal for me isn't to convince you why we know how to do this or that on the guy, I'm going to prove it to you through results. We just got to get past the talk and into the action. And I think there's enough talk that's been done. It's time to start getting this done through execution and pointing to the numbers as opposed to saying where we'll be.

Our next question is from Kevin Caliendo with UBS.

This is Dylan Finley on for Kevin. Wondering if you could talk a little bit about implants. You go direct there, so not necessarily impacted by your relationships with dealers in that area of the market. What are the specific pain points that you're facing there today? And why do you think your predecessors have not been able to close the gap within the market?

Yes. Again, good question. I can't answer why people before me did or didn't do things because I wasn't here. So I'll focus really on where we're going to go from here. I don't think we have the right amount of reps present throughout the world. I'm not convinced they have the right training. I don't believe the branding and coordination is laid out in the way that can add strength. I don't think we're leveraging some of the other infrastructure like a DS core type program that we have to benefit these.

I think all of those have to occur with a significant increase in training not only of the reps, but of the dentists, of our products, and quite frankly, in that area, we need to be present. It's honestly not that different than orthopedics, where you need someone there in the room, someone well trained, who can offer a lot of optionality out for the dentist. And I think we've got to take that type of model and apply it more effectively here than it has been done in the past.

This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

All right. Good afternoon. Why don't we get started? My name is Jeff Johnson. I'm the senior medical technology analyst at Baird. Our next presentation this afternoon is from Dentsply Sirona, a leading manufacturer of dental consumables and equipment across the globe. With us today from Dentsply, we're happy to have CFO, Matt Garth. Matt, I think you said we can just go straight into Q&A.

We can go straight into Q&A. And you can slow down. It's okay.

I will. Now that we're back on track after our little distraction there from -- I mean how do you send kids to Ohio State, why?

The Ohio State...

Okay. We are going to actually talk dental here, not the best Big 10 school in the nation. So you guys were at -- I saw the eyebrow raise. You guys were at Morgan -- well, at an inferior investor conference yesterday, let's put it that way.

Yes. You've had a lot of caffeine. Just keep going. Love the spirit.

Yes. So you guys were at a conference yesterday. And you've been on board 5 months now.

Oh man, no, 90 days.

90 days. And Dan, 40...

30 days.

30, 40 days. So some things I heard yesterday that aren't in my script, we'll get to my script here in a bit. But I'd love to go through just a few of the comments as we're starting to hear maybe a little bit early versions of a plan rolling out here from what I'd call the new management team at Dentsply. The first one was talking about R&D going to 7%. It's long been 3-ish percent if even that. And now the last couple of years under a prior management team, it was up to 4%, maybe 4.3% or so. Going from 4% to 7%, what -- where does that get focused? How quick does that layer in? And just conceptually, how should I think about Dentsply as a 7% R&D company instead of a 4% R&D company?

Okay. Good. Great quote to pick up. Let me back you into some of the other quotes you have started with. First and foremost, what are the priorities? The priorities for Dan and I in the immediate future are getting our U.S. business back to health. Part and parcel of that is a reallocation of resources within the organization. The way we are structured today, and Dan used the word bloated, which I love, but we have a robust corporate structure that we think we can find efficiencies in and redeploy those monies towards value-accretive activities like our field force and innovation. When it comes to innovation itself, where has the company been really good at the past couple of years? On the equipment side of the house, we've introduced a number of products that are going to lead the market to new utilization.

We have been very good across other areas where we have not been putting money has been into the EDS business. And so when you think about our revenue breakdown, EDS somewhere between 40% and maybe higher, there's areas of opportunity for us to invest in there. And then when you scratch the surface a little more deeply, if I were to take out the actual expense that we capitalize because it goes into things like software and stuff like that, today, you're probably running more around 5%. So these incremental adds that are going to step change our opportunities in parts of the portfolio where we have not been spending and then spending more in accelerating the speed in places like software development, building out the rest of DS Core to enable a long-term algorithm of growth. Those are the things that we're focused on. And by the way, a lot of that is centered around the customer experience in the U.S. and helping us get back to health.

Okay. All right. So a couple of things to unpack there on the EDS investments. That's essential dental solutions, primarily consumables. Is that where you'd see those investments in general dental consumables? Is there a part of EDS that would be allocated a bigger part of that than just general consumables?

Moving from, let's call it, 4% on the P&L, 5% in my world to 7%, that's a lot of opportunity, right? So that's -- you're talking several tens of millions of dollars. I think there's opportunity as projects come up across all of EDS.

I guess what else is in EDS that I don't conceptually think about when I hear -- I just think it's general consumables?

Sorry, I'm sorry. You have Resto in there as well. So anyone going through a root canal, those products and processes are in there. There's opportunity for investment there to make improvements and step change technology as well as the consumables. I mean, like you said, between Dentsply Sirona and our competitors, not a lot of investment has been made in that normal state everyday dental solution business, and we can start to develop that with how we're going to reallocate some of these resources.

All right. Fair enough. And I think there was something in here where I think you also talked about -- here we go. I think some of the margin achievement that's been done has been done through unilateral cuts throughout the company, and both Matt and I are going back saying we need to invest more in sales force and innovation and less in back office. So my question is, if R&D is going up, but you need to invest more in sales force, then do you feel like there's still enough to reallocate away from, I guess, is the nice way to say it, G&A that is this still a margin improving story potentially over the next couple of years? Or do we have to take a step back? We have seen historically, and I know you did a lot of due diligence, I'm sure, before you took this job, it seems like between you and maybe one of your largest competitors, margins kind of get to about 20% or so operating margin.

And then something happens, they fall back to low to mid-teens. And then we go through another kind of 3- to 5-year cycle of getting them back towards 20% and then something happens, they come back. So there's this kind of sinusoidal almost kind of margin trajectory within the dental manufacturers over the last decade of up and down, up and down. And we're kind of there now. You guys, I think, what, 19% or so this quarter.

It's going to be higher than 19%, but yes...

Yes. But I think this past quarter, somewhere ballpark, I'm closer there. So how to think about kind of what higher R&D and needing to reinvest more in sales force means from an operating margin standpoint?

You answered -- sorry, you asked that in reference to the next couple of years. And I would go back to the prioritization, right? So you have new leadership who's acting very quickly to get orderly discipline in the organization that is empowered to drive growth in the field. So what does that mean? That means we're prioritizing heads, education and capability within the sales force. That's meaningful investment. Innovation, we just talked about, you're going to move there over time, right? You're not going to 7% tomorrow. You're going to get there over time. We have a pipeline that, by the way, our innovation leader today is very strong and has a very good disciplined process.

So we are moving projects through. We're asking him to open up his aperture across areas that maybe previously we haven't had the monies or the focus to spend in. The organization itself, my organization, the resource side of the house, both Dan and I have a legacy of running extremely lean. So what does lean mean? It means not backfilling in accounting and finance, other resource areas. It means doubling of duties. So if I have people who I think can take on more, they'll have 2 jobs, not 1. So I think that we can collapse costs in the non-value-accretive areas of the company much deeper than was originally envisioned, and we can do it with speed. But to your point on margin development, I wouldn't necessarily expect that to impact us in the near term.

Both Dan and I have the same philosophy. And I think the company itself has this philosophy. We're not going to get off track to meet a quarter. What we have to do here, this return of health for the U.S. business requires durable decisions. And those durable decisions are founded in value accretion. And it's tangible, right? We know today because right now, I'm looking at every single headcount in the company, and I am approving every single job opening in the company. Now you would say, hey, that's a level of control that you don't need. Well, we're in the midst of a turnaround, right? But it does 2 things. One, yes, it sends a message of discipline to the organization. But it also allows us to get into the thinking and the philosophy of why these heads are coming through. We're prioritizing customer and value-accretive roles.

And so if I tell you, our opportunity implants in North America, we needed 30 heads to go after the regions that we didn't have full scale in. And maybe we had resourced 12. Well, let's go resource the rest of them. I'll pay for it internally, but let's get them. And so that's the shift that's going on. Now does that end up to the greater question, developing margin accretion today? No. I'm going to repurpose those dollars. So do I think over time, as ERP gets fully implemented, as we continue to collapse and get efficiency in our roles on the non-value-added side of the corporation, I think that, that will ultimately yield our ability to get SG&A down back to levels that's commensurate with the rest of our peer group.

So instead of the mid- to high 30s, down into the lower 30s, maybe around 30%. And then on the gross margin side of the house, we have an exceptional leadership in our supply chain. And I do believe they have through whether it's SKU rationalization, whether it is taking a look at our footprint, pathways to move our gross margin by hundreds of basis points. And so that evolution has been underway, and I think we can get there in the next couple of years as well.

Okay. Let me ask one question just on what you said there on implants of if you need 30 and you're at 12, you can go to 30, things like that. That has been tried a couple of times at Dentsply over the last several years. And I guess my question is, if you resource up, but you don't yet have the right product. And maybe you think you have the right product. I don't know, and I'm not sure if you do or not. But my experience is right now, Straumann has a fully switchable platform. We can talk about what some of your other competitors have been doing. But do you have the right product right now for the U.S. market and for the global market within implants? And I want to ask a question on ortho similar. But if you resource up, you can drive that turnaround.

I'm going to characterize something, and I'm -- maybe this was a quotable from yesterday. 85% of what the prior team had seen and was acting on was right. The challenge here is depth of change and speed of change, maybe some moderate realignment, right? But empowering the organization, putting the right resources in place, whether it's product, whether it's people, it is the total customer experience. And that's what we are driving to. And I know those words have been said before, but there's a durability in this. You went back to margins being volatile over time, for sure, right? And so then you have to make variable change decisions and you have to pull back here.

We retrenched in a way that our competitiveness was not where it needed to be. More particular, going after cost reductions to solve lack of growth issues required cost cuts across the board as opposed to disciplined, well-thought-out cost cuts that were focused primarily on non-value-add areas. That's how you get corporate dollars staying relatively flat while selling dollars and innovation dollars go down. That's not the recipe for competitiveness that the organization needs. And so when you go back to and say, well, everyone's talked about this before, sure, sure. But there's a durability to it that matters. Because I will tell you, if I am to diagnose, and Dan and I talk about this a lot, the value of our brand has been impugned.

What Dentsply Sirona brings to the table in terms of premium positions, premium solutions and innovation needs to be deeper and it needs to be accelerated. And so if I need to resource as CFO, those elements, I'm going to do it. And it's going to come out of my organization and/or we're going to find creative ways to do it. But when you say competitors have been taking share from us, absolutely. We have not been competitive. And I will tell you the diagnosis and previous management was there as well is the customer experience. Our customers were not receiving the type of premium treatment that they deserve. And Dan and I are at the forefront of pushing that through and changing that right now.

And then when you go back, and I know you're going to get there, Jeff, but you were talking a lot and now I'm going to talk a lot. When you look at it from a perspective of making decisions on who we are going to partner with as we move forward, those are kind of easy decisions for Dan and I now because it's with everyone. We can be a functional good partner with many parties, and we should be. We have a premium solution that fits into a whole slew of potential partners categories, and we should be able to work with them and have very productive relationships together. And so that tonal change will hopefully manifest itself in the ability to grow again. And one more piece on this. I'm sorry. I know. No, I don't want you to talk.

No, I'm trying to remember the 3 things so far out of what you said that I want to come back to...

It's all recorded...

No, no, no. I want to ask you follow-up questions.

They're all taken notes. You can just ask out to the crowd. Well, actually, let's just go there then. What's your next?

No, no, no. So okay. Well, so now you put me on the spot and I forget what they are. Why don't you give your point now, I'll come back to mine in a second and hold on.

No, I want you -- now I forgot my point. Now you got to get on your point.

All right. So on the -- well, let me just go to the -- you talk about partners. I want to make sure we're being kind of clear headed and clear voice here and what you're saying, you can be good partners. Do you mean relative to your dealer and distributor partners where there has been some questions over the past year or so? Is that your comment? Because yesterday, again, I'm my little handy dandy that I just hit don't save and closed out on. So there goes that.

Go to the spirit of it. You don't need to give me the quote.

I do need the quote because I'm not smart enough to remember, but it was something about, hey, we're going to continue to reevaluate our partnerships. I thought it was a strange comment if part of a new management team is to -- maybe not mend fences, but to mend fences with some of your largest dealer partners. The comments yesterday didn't strike me.

As conciliatory?

As conciliatory.

Oh, no, not at all. I believe they're totally conciliatory. Think of it this way. And Dan, we're both very purposeful people. Like our stage presence, I hope, is really good for people because it's natural. That's where Dan and I work too, right? The opportunity for management change on our side, and by the way, on our 2 largest distributors in the U.S., their management teams are changing, too. It opens the door for constructive relationships. That is the tone. It's coming off the back of a very vocal public statement that we are going to change the way that we work with one of our largest partners. It's hard to say -- like that's not -- I've never negotiated with partners that way so...

We'll put that in the 15% bucket that was probably not the right strategy. I'll say that, not you. But in the 85% bucket that you said prior management was on the right track. I think the other thing I would say they were on the right track, and I think you're saying the same thing. If -- and this is almost going to be not a complement, but it is to Dentsply holistically is if there's one thing they really messed up over the last 20, 25 years, it was being an acquirer of technology for years and years and years and not integrating a single thing.

And this prior management team finally got that and got that it was hard to integrate and do the heavy lifting, especially in Germany and other kind of large markets where it's not easy to reduce headcount, close things down. Is there still a decent amount of that, that can also fund some of this product development and higher R&D and sales force investment? Or is that low-hanging fruit, which I don't think after 20 years of not going after those costs that it's probably been harvested at this point. Is there still a decent amount of that to harvest?

There were a lot of double negatives in there. Here's where I'm going to go. I think the opportunity at the customer level, which was proven out by the steps that the team took in Germany -- sorry, in Europe, all of EMEA is now bearing fruit. And that's why we are seeing good growth through EMEA. The change in partnerships, our leader in EMEA is outstanding. And the approach to getting the customer experience right, pursuing the relationships across the board, whether distributor, nondistributor, direct, nondirect, just a multichannel approach works really well for us. The partnerships in the U.S. can follow. And so it is very conciliatory. There is room for Dentsply Sirona. We should be the supplier of choice because of decisions we've been deselected. That can't be the case.

Now to your greater point over -- once you have the consumer experience fixed and that helps drive the U.S. turnaround, I said before, there are still a lot of activities that were underway and pointed to and whether that is on SKU rationalization, which there's been a lot of work done on footprint rationalization, which we're executing a lot of that, on ERP deployment. Remember, we have 14 ERPs today.

Because you're an acquirer of technology.

Correct, right. And so we're swallowing some very large pills right now, getting the organization footprint the right way, right? That's not operating footprint. That's like how we stand, how we identify ourselves. I think there's still a lot of fruit to be borne out of that. ERP in and of itself, you're -- I would say today, you don't get synergies from an ERP implementation until later. We're in year 1. Synergies are going to come. And so we will have that opportunity to extract further integration savings as we move forward.

But I will tell you, this organization, this team, what they needed most, they needed direction, durability that decisions would stick back to your volatility of margin, Dan and I are not going to pursue this variable slam whenever something happens in a quarter. We have a long-term destination that we will share with you guys at some point on where we see this company going. And we're going to make sure that it is well thought out, prudent and that it matches what the market will provide. And along that way, we're both going to be driving lean processes throughout the organization.

So I'm hearing you a lot on the lean processes, the cost side. Is Dentsply a revenue grower over the next year or 2? Or do you need to take a step back before you get back to a growth?

The way that I'm entering the planning cycle is to first say, what is the market going to provide? And by the way, I don't even know if I'm looking at it on a 1-year basis right now. I'm looking at it on a 3-year basis. So I'm giving the teams a CAGR outlook that just says your market is going to grow this manner, yes, year-by-year. But over these years, it is going to grow for EDS, GDP minus, so 2% to 3%. For CTS, probably the same, right? Just market -- what the market is giving you. We can talk about aligners, but let's just say that they're going to be mid-single digits, right?

I don't know what you learned over the weekend that would change that fact point from how I'm talking to the teams. And then as you look at the implant side of the house, same, mid-single digits. That's what the market is doing. We have not been able to hit market growth rates. What do we need to be able to do that? So can Dentsply Sirona be a grower over the next couple of years? Yes, because we should be able to grow with the market. It takes investment to be able to grow with the market.

You can't have resource gaps. You can't have geographical gaps. You can't be out of markets that are growing faster than other parts of the market to get the average temperature of the hospital, and that's where Dan and I are pushing. Let's get back to market growth. And from there, how do we get super competitive and pull out what positions we want. Fact of the matter is getting back some of the share losses to an exceptional competitor in implants, that's going to be hard, right? Your earlier question, it's going to take innovation. It's going to take resourcing.

Yes. So you just announced that you're going to keep the Wellspect business, which I think makes sense.

Yes. Do you need to look at your quotes?

No, I got the quote there. I know you're keeping that. So -- and that's been a decision that has been toyed with off and on over the last, call it, 5 to 7 years, a couple of different times. And that's the answer that tends to be each time. But I guess my question is, in all parts of your dental business, in today's world, can you be a diversified multi-segment, multi-category player? Does it make sense to be when you are competing against 1 or 2 stand-alone pure-play focused implant companies, 1 or 2 stand-alone pure-play clear aligner companies, 1 or 2 or several 3D printing companies, things like that. Those companies like right now seem to really love competing against the diversified. And I'm not putting Dentsply only in that [indiscernible] well -- but there are several others as well. But my point is, can you be a broad multi-platform dental company and succeed in today's world? Or do you need to have a narrower dental business?

No. You do not need to have a narrower dental business, but you also layered into that Wellspect. The Wellspect decision, the Board, we presented the findings of the strategic review. And the fact of the matter, and this was in one of your quotes, but let's say it again, not yielding the valuations or the cash that would drive value for Dentsply Sirona and Dentsply Sirona shareholders.

No, look, it's 40% of your cash flow. It's tough to get rid of that if you're trying to fund a turnaround. I get it.

Thank you. Okay. So that one was a relatively easy decision for the Board. And I think we feel really good about the fact that Dan and I spend very little time focused on that business. We help leadership, we convey a purpose, help set targets, but they are very strong in that area. And by the way, it's been growing. It's been raising its financial profile and delivering back for the parent. On the total portfolio on the dental side, I think it really comes down to your vision of the future, which you're going to try and educate me on after this. But I have this -- it's not idealistic and it stems from where prior management was as well, which is there is an evolving ecosystem in which the dental office is going to operate.

And it is centered on technology, and it's centered on the evolution of a client's dental position over time and the associated revenue stream that a dentist or a specialist or a DSO can get from that client over time. And having a whole suite of technologies from consumables all the way through to implants for the various stages -- aligners and implants for the various stages of mouth development in a client over time with the projection and analytics that allow you to associate that revenue stream over time offers huge value creation opportunities for the dentist, more so for DSOs.

And if you can do it at the enterprise levels with DSOs, think about this. If your technology is so connected that you can get down to the client level and you know the potential revenue stream for that client. And then you can start to benchmark by chair, by dentist, by office, how each of those are performing against each other. If you're running a DSO, you have a phenomenal ability to create significant value. That is the ecosystem. And so selling into that ecosystem with a unified capability across product platforms, across technologies that are all speaking to each other, all for the benefit of driving more value for the dentist. That is the power, okay?

So look, those are words, but I think that's been the premise of this for years. So go execute it. And the difference here -- and I just -- when you get to a point where Dan, who's an exceptional CEO and operator, I'm personally, I'm very happy Dan is here. I think the organization as well. For me, Dan always says, "Hey, I'm not going to win any popularity contest. He's going to win all the popularity contest. I will not.

I haven't seen any sign of that today.

I'm just saying, no, this is all funny games, but like let's go operate. Let's go deliver. Talk is cheap. So we are going to execute. We are going to deliver. The rest of the P&L, just so you know, because I need to outline this for you. We're free cash flow-focused managers. This company has a huge opportunity in driving higher levels of free cash flow, getting more financial flexibility by getting debt down a little bit and then just buying back shares. We can be a top quintile TSR performer if we can get our share repurchase program to consistently deliver 8% to 10% EPS growth. Let's go.

I don't disagree with any of that. I think that's right. I think in this market, it's hard to get paid that way in mid-cap med tech. But I think strategically, dental, no matter your problems or some of your competitors' problems over the last couple of years, cash flow has still been...

King.

King.

Cash is king.

It is. It is. All right. With that, I think we're going to wrap. So please join me in thanking Dan -- Matt, sorry. Yes, exactly. You're no longer -- you're not CEO. Thanking Matt for a wonderful overview here of the early stages of the Dentsply turnaround. And our next presentations set to begin at 2:00 p.m. Eastern Time include HealthEquity in this room, Soleno Therapeutics in Empire Ballroom A, Contineum Therapeutics in Ballroom B and [ EleFast ] in the Morgan Suites. Thank you.

Thank you.

Good afternoon, everyone. My name is Erin Wright, the health care services analyst at Morgan Stanley. We're happy to have with us Dentsply Sirona and the management team. We have CEO, Dan Scavilla, if I said that right, and Matt Garth, the CFO. Newly appointed management team is here.

So we're really excited to have you here and give your views on the strategy and everything kind of going forward. But for more important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/disclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

And with that, I will kick it off with sort of a higher-level question. But just in light of the recent management changes at Dentsply, new CEO, new CFO, both of you here today. Can you just give us some more insight into what the new team is really thinking in terms of strategy here?

Yes, glad to. And of course, I'm 30 days in, Matt's just closing out 90 days. So we reserve the right to refine that and go a little bit deeper over time, of course. But at the end of the day, there's a couple of things to throw out. First off, a team before us, for the most part, was on the right track. And you're not going to see a radical shift in some of the thinking. There's things such as common ERP or other things that we would follow and continue to put through along those lines.

I think both Matt and I believe that we need to make bigger moves or deeper moves in structure. We need to move faster than we are. Both of us feel like the internal processes to formulate a decision and get approval are too cumbersome. It's actually a competitive disadvantage. And so said differently, we need to actually get out of our own way to move faster and use great products that we have, but how we go about addressing the market is what I think we have to see a shift in from us.

I think -- as we think about turnaround stories in dental, there's been admittedly several of them and one of them being different iterations of the turnaround story even at Dentsply Sirona, right? So I guess you said there's not going to be that much difference relative to kind of prior management team.

But can you talk about even before that, and like where maybe others went wrong and then also where you can kind of move forward in terms of also the optimal mix of your business. Today, for instance, you announced the [Technical Difficulty] retention of the business, I guess, I should say. But how are you thinking about kind of your approach relative to others in terms of turnaround stories and what the right mix is?

Yes. So I'll start with that. It's tough to say what others did wrong, especially as you're just sort of new in the seat. But if you really look at a few things, how we penetrate a market, which is direct and with dealers and through DSOs, et cetera, I think we have to reevaluate decisions that we're taking about that versus what we think we should be the right approach. And so I think penetrating the market quickly and deeply is a key thing that we want to look at and understand and we're working through.

Capital, in particular, is suffering today because of decisions made that I think we want to go back and strengthen a different position on. But ultimately, as I said, and I think Matt will chime in here next on this, we have strong products. Are we structured correctly commercially? I'll put a question mark on that. I don't think we are fully. We have to do that differently. We're too internally focused on gaining approvals and getting things stamped before we execute.

And while we have to be compliant, we have to do that in a more efficient, faster way. And so there are really a couple, I know, basic, not overly exciting things. We also both feel that the middle of the P&L, the support groups are larger than they should be. And so we need to free up those funds and put them into R&D, put them into the field so we can innovate and penetrate faster.

And I think, Dan, just to add to that, which is something we both come to very quickly, it's what the identity of the company can be from a P&L through cash flow perspective. Dan talks a lot about resourcing and where that goes to be most effective for growth. And then once you achieve that growth, the decisions that you make in strengthening that full cycle in terms of where that capital goes.

So investing in the organization, repurposing some of that capital, how you're going to balance that in terms of freeing up the balance sheet, strengthening it through debt paydown and then determining how you're going to return that value to shareholders, things that we're taking on in the early days.

And with the news today and retention of the business, what was the rationale behind that? And like what brought you to that decision? Was there a formal sale process going on and you walked away from more? Or was this something more you found kind of underlying value proposition in that business that wasn't being recognized?

You kind of answered for me. So a couple of things. The Board opened up strategic alternatives to look at, including a sale. They worked with Goldman to put it up, and we went through the first phase where things came in. During that time being new, I went in actually to Germany where these new products are being developed.

And I realized we have a lot of late-stage investment that has not yet been monetized, hasn't been launched out. And so of course, from a PE model or a spin-out model, they're not valued into that. So if you look at what we believe the intrinsic value to be and the potential of these short-term launches coming up, they weren't accurately reflected in what was coming in. That was step one.

Step two is, if you actually do the full math and say, okay, let's say we spin this. We have to do a stock buyback to keep EPS hold. We have to do a few other things. You actually come out net zero or slightly down in cash for the shareholders. And more importantly, you would have impaired your cash flow 40%. This is a large cash flow business. So in the turnaround stage, you spin something, give nothing to the shareholders and reduce your cash flow significantly. It didn't make sense to me. And then selling it at a price that doesn't have the value of the soon-to-be launched products were in there.

And so at the end of the day, it's in our interest to say, let's hold this and continue to grow it and gain value from it, use it as a fund to help fuel the turnaround in dental. And it is a fairly stand-alone business. So it doesn't take a lot of time out from us. In fact, I'd tell you it's less than 5% of my time, and we'll put up a structure that even further makes that independent.

Yes. It's a higher margin, good cash flow business for sure. We kind of feel like that retention was warranted. In terms of -- let's go back to fundamentals in dental, how you view the long-term growth trajectory in dental? How you would characterize it now or how you would characterize it longer term relative to what you're seeing now across various different geographies?

So it's a couple of things, right? If you go back and look at some of the published data, you would say, hey, dental has been growing above GDP for many years, 20-plus years. And in recent years, it's come down to grow at GDP. I think it's fair to say that, that assumption for me is to continue. I wouldn't wait and say I'm waiting for the market to recover. I don't think that's a healthy thing to do.

So I think knowing that it is at GDP, we need to make sure that we continue to innovate, share the strengths we have with our customers to demonstrate value and efficiency and simply outcompete, which is not something we're doing well today. I don't know, Matt, if you want to add?

I think as we look at the resources again and how they're being applied, where we have opportunities to refocus some of the spend today, which sits in the corporation into sales, into innovation, it's a big opportunity. And so that can help us in those areas where Dan said, to catch back up to what the market growth rates are and then in certain instances, find opportunities to beat it.

And by the way, our planning process for '26 is starting with just that question to the organization. If we believe that these are the market growth rates, how can you achieve these growth rates? And it's actually a hard question for the organization because we haven't demonstrated that we could in the past couple of years. So let's get into it early and talk about it.

I think that's a good point because, I mean, there was the $3 number in terms of EPS for 2026. That was based on long-term growth -- or long-term growth that was different, right, than what we're seeing now and potentially what we see kind of longer term, too. And so I think that, that makes a lot of sense. But as we think about 2026, what do you think -- or when do you think we should get more color on that front? Is it the third quarter earnings call? And what sort of baseline long-term growth do you think you will imply in terms of that 2026 target?

Yes. So Dan, just looked at me, again, 30 days and 90 days. I think the process for 2026 is this. We want to see some demonstrated points of differences in decision-making that we are making now. And so we're not expecting some of these things to take a long time, and that will inform what we believe about 2026 in terms of top line growth.

I think we can be much more pedantic and have a better understanding of things in the middle of the P&L that we control because we're going to make changes to my organization and other organizations within the company. And so we can start to talk about some of those things, but we want to see some proof points before we really mark out what 2026 looks like.

And that's one step of the journey, right? So just keep in mind, for us, returning the U.S. to health is paramount. We have to do that. Nothing else will matter in the company given its size. And you have to do that through capital and implants and aligners, that kind of business. And so even in that approach it's significant. While we address the middle of the P&L, our goal is to be at or slightly above market.

We're not going to come back and say we're 10% or 15% growers in a 3% market. But what both Matt and I believe is we can strengthen the earnings per share and the cash flow and have meaningful growth in both of those areas for the long term that will pay down debt and unleverage the company and quite frankly, build up a powder for us to go out and do acquisitions.

Okay. Great. And then -- let's talk a little bit about the near term in terms of 2025 and your expectations there. I think revenue growth negative 4% to negative 2% organic is what you're forecasting. Can you break down some of the key headwinds, tailwinds that's incorporated there and what you're seeing?

Yes, 2% to 4% down is what we were pointing to, right? And that was based on a number of factors, right? Some ERP prebuilds last year. We've seen some headwinds in CTS. We've seen some headwinds in implants, pointing to those we do have Byte that is coming down on a comparable basis year-over-year as we've suspended sales in that business. So there's a couple of proof points.

But really where I think Dan and I have focused early days on is how do you get stable? How do you demonstrate that very quickly? And then how do you build back the processes to grow. So again, if I get really near term and just say -- going from Q2 to Q3, we do have a seasonal down. And we've said that, that's kind of 5% to 10%. But then we do see DS World coming in at the end of Q3, which leads into Q4. And our Q4 springs back largely on the basis of how dentists are going to take advantage of tax situations that they may have and what the interest rate environment may be.

So we're looking at the rest of this year to be fairly balanced with the first half. So it puts us really in a nice position from a guidance perspective to be able to meet guidance as we saw in the third quarter -- sorry, second quarter and then generate that type of top line growth. But it's the momentum and the things that we're going to talk about underneath going into '26, but I think they are going to be important proof points for us.

Okay. And talking about some of the things that are under your control and margins across this business, I think fiscal '25 margin target of over 19%. Can you talk about or help us understand what's durable here? What some of those areas in terms of low-hanging fruit from a cost save perspective, what you're targeting first?

I think the real thing is, we're looking for sustained profitable growth, and we're looking to make sure we build the organization that can do that. This is really about when you actually have the right solution for a customer, and you have a good customer experience and you execute those, your financials will follow.

And so while we're looking at finances, it's not leading it, they're going to be the result of us doing the right things. That said, it's clear to us that we have to change how we go to market, particularly in the U.S. to penetrate that better. We have to soften up what's in the middle of our P&L so that we put more into R&D and more into the field to do those expansions. And we're trying to do that almost as a self-funding item as opposed to going out and still leveraging more to do it along those lines.

And so while we're not spinning out exact margins, what we're saying is growth will give you a margin lift anyway. It will give you cash. Us reallocating those things can sustain it. And the ultimate thing here is just to be continuously strong and more predictable on your margins once you solidify the top line.

The only other thing I'll add, Dan, and I think both you and I look at it the same way, and we're trying to push that through the organization, operating in an extremely lean manner given our backgrounds of operating and lean, bringing that philosophy to the table and ensuring that everybody knows the value of a dollar and how they put it to use for a return. And so minimizing those things that are not return-seeking.

So by and large, corporate organizations versus the sales and innovation organizations, repurposing those dollars, Dan has talked about it today, and I share the same view, we have a significant overspend on resource functions that can go back into value-generating functions.

And can you talk a little bit about some of the -- I guess, in the first half of the year, can you talk about some of the moving pieces from a working capital perspective that you're seeing, like in terms of the cash flow dynamics, I guess, weren't as good in the first half. Like how do you -- can you get back to like $300 million, $400 million in cash generation on an annual basis?

Yes. And I think in 2025, you're seeing some unique dynamics. There was a big cash flow benefit last year from a tax credit. If you remove that, we're kind of pointing to even slightly lower free cash flow this year than what we saw in 2024. That being said, the big dynamic of that, we had $1 billion in working capital on the balance sheet. That is overpositioned for us. A lot of that is being driven by prebuilds in inventories related to ERP go-lives related to tariffs.

So we can work through those inventories. We can drive down our inventory position, and we have a phenomenal supply chain team that's going after doing that. The other areas being very pedantic and directive on the terms that we are providing to our customers and the terms that we are getting from our suppliers, those are 2 key areas that we're also working on. Now Dan is going to tell you, we don't have targets for that yet. The answer is they are going to be better than they are today.

Okay. And then from a capital allocation standpoint, you did mention potential to do deals on -- how are you thinking about M&A? What would be the ideal target for you and maybe it's too early to ask?

Well, not that it's too early to ask, stabilize the business and the foundation before you build on it. And so let's go get ourselves in a solid state within dentistry, retain well spec and let it grow, accumulate cash to deleverage and also stockpile. And then let's look at opportunistic deals as bolt-ons or even as transitional that will expand your TAM. I think that's really effort. But if you said, hey, do you see that happening in the next 12 months? I doubt it. It would have to be really an amazing opportunity. I think we need to focus the organization on coming out stronger first and then building on that base.

Dan, really cool thing in that, though, was implied a strong balance sheet and a leverage profile that gives us maximum flexibility. And so being able to have gum powder if we need it or significant cash reserves should we want them, that's how we're driving after it.

And how do you think about the R&D strategy? I think you talked a little bit about this, but is R&D spending over 4% of sales? Is that the right level? Like what do you see?

I'd like it anyhow...

Yes, sorry.

I would like it to be higher, I would say, 7% or more at least equivalent to the market.

Okay. And then I always thought that there was like going back to the mix of the business and sort of the strategy and the rationale between like the Dentsply Sirona merger that obviously has been shaky since then. But how do you prioritize things like are you looking at SKU rationalization? I think before like it was like 100,000 SKUs across Dentsply. I would think that, that's an area of low-hanging fruit that you could kind of take a look at. But any bigger chunkier kind of divisions that you don't see as -- that could be deemphasized, I guess, near term?

No, not really in the near term. I mean what I would tell you even with the Sirona thing is, putting capital out and developing shares side abilities is key. And I think having the ability to have all of your field trained in that and be able to sell that to dentists can be better than it has been done. I think there's an opportunity there. I think the verticals are good verticals. I think EDS is solid and can continue. I think if you look at implants, we have to do a much better job. I think CTS is a major part, including DS Corp.

And how you build the future of digital dentistry. It's all out there. I wouldn't walk away from that. Even I don't believe labs will ever go way to zero. I think there'll be a significant part that we have to pay more attention to. And I think you have to verticalize this and understand how best to approach these. We've been doing it geographically. And I'm wondering if there's a need for us to think more as a vertical -- set of verticals than just the geography type approach. I honestly don't know yet. I'm still playing with that, but I'm leaning in that direction to go deeper.

What's the latest on tariffs in terms of your expectations there?

So for this year, it was really unchanged in terms of the net impact to the company, around $25 million. As we moved into what that actually means, though, on an annualized basis, that's $50 million. But what we said at the end of the second quarter was given the new tariff rates that were put into place, particularly Switzerland came on with a very large rate, and you know that we do manufacture in Switzerland and distribute around the world. We expected that tariff impact to grow to about an $80 million annualized impact.

Now that was only the impact that we talked about. We didn't talk about the offsets. We didn't talk about the things that we are looking at doing. That will come out. We'll talk to you about that in Q3, and we'll keep you up to date on that. But we do have levers that we are going after.

One of the things within, let's call it, SKU rationalization, there is also our footprint rationalization in terms of how we operate, where things are manufactured, how we go after that, the speed at which we do that, that will help us, other levels within the supply chain organization and of course, surcharge pricing and/or tariff pricing, to be able to push through some of those are requirements that we'll have to talk about.

Okay. And then let's talk about equipment first. So how would you characterize the willingness to spend on capital equipment at practices right now?

I think it's a little bit mixed, right? Certainly, interest rates being high don't help. And as they decrease, there's probably more of a willingness since dentists -- individual dentists will come out and actually use financing to get some of that type of thing. I think that a lot of the dentists that I've talked to see the benefit of chairside and the need to do both milling and 3D printing.

I think that they're a wave of the future. I'm not saying they're 100% of the future, but I think they have a prominent and growing role in the future. And I think how you provide scalable options to the dentists over the long term is going to be key to capturing that real estate.

And within kind of the CAD/CAM offering, your newer Primescan portfolio with Primescan 2, Primescan Connect, also Primemill. I guess any update on sort of the competitive landscape, ASPs, how you're thinking about the competitive response to some of the lower ASPs that are out there?

I think there's always going to be lower cost offerings out there. We're not going to become the low-cost offering. And you tell folks you can choose between the Mercedes and Hyundai. There's room for both. You have to decide what your style is and go.

And I think a company with our background trying to become a low cost isn't really a realistic approach right now. It doesn't mean we can't drive cost out and be competitive in the right ways. But I think ultimately, you want to sell based on innovation and technology that matter and get into the right market segment that will accept that.

And Primescan 2, what's kind of the target customer there in Primescan Connect and the different iterations? Like now do you have a sufficient offering for like mid-tier to higher end? And how are you approaching kind of the different offerings across the Primes business?

Well, the best thing about Primescan 2 is the fact that it's cloud-based digital scanning. And so we're really going at that almost anywhere we can for the sake of saying, to modernize your practice and to capture digitally that ability to take a patient throughout from cradle to grave is going to be one of the best ways to do it. It goes right in line with our DS Core ability, right, to offer that as the overall arching software to do your business with and capturing and transferring data. And so for us, we're really spreading wide. We're not focusing in on Primescan too.

I think for the mills and the chairside, it really depends on what the dentist is doing with the specialists, although more generals are playing with it. And I would tell you, we're a little more open to that as opposed to saying we're focused only on this type of dentist at this level for these things. I think we're willing to talk to them and see what's your best solution. And ultimately, it's how do we build that long-term relationship by placing this capital with you, growing it based on you growing your business and really demonstrating the efficiencies and therefore, the chair turns you can get by using our systems and our approach.

Okay. Great. And then I'll switch over to specialty. On the implant side of the business, can you parse out what you're seeing now in terms of the key underlying kind of growth and key drivers of that business, both in the U.S. and international markets? And how do you get back to market growth rate in that segment?

Yes. Well, it's a couple of things. I think with implant, you really have to further define the brands with a lot of brands. And I think we have a lot of white papers and clinical data that we haven't leveraged to our ability, meaning that we haven't fully trained our sales force or expanded our sales force in a way that's optimal there.

So if you got into the implants, I think it's a matter of having more feet on the street with better education to a differentiated portfolio offering than we have today using white papers that we have. I think that's one on the implant side. On the aligner side, everyone talks about aligners these days, but actually that solution, as you know, is braces, it's wires, it's also the aligners. And we have the ability -- honestly, I think we have some of the best robotically dense wires no one else has.

When we have to SureSmile, we can actually go along the journey with a patient. He may want to start with wires, he might want to move into aligners. He may even do the opposite. We have to capitalize on that more. We also have to modernize our software. It's a bit old and cumbersome. And so to be competitive there, you want to go and modernize your software, making it easier for the practitioners to use and then offering them both the wires and the aligners as a way to go at it.

I think those 2 are probably the biggest thing we have to do. I think post Byte, we have to strengthen our ortho relationships. I think there was something there that we have to go back and build bridges on, and that may take some time. But I think we have to be more present with them now that you've walked away from Byte and direct-to-consumer.

Got it. And what does the innovation pipeline look like across implants?

Across the implants?

Yes.

There's a few things I'm not going to talk about that I think are going to be relevant. And I'm coming from my spine background with this and talking about vertebra and putting things in. And when I see the way the engineers are approaching this, I'm generally excited. There's some great metal technology. There's some great fastening technologies that I think if they come through, can differentiate, but they're early on right now.

Okay. And I think we've updated kind of the software across SureSmile before, and you're saying you need to still modernize the software. Is that what you were talking about on SureSmile?

Yes. I'll be specific. I think it takes about a week to be trained on our software. It takes 2 hours to be trained on a competitive software. That's a big gap that has to close.

And how is demand for SureSmile right now?

It's okay. It's not great. It's moving along. It's going through the process. But if you say why? You've also depleted a lot of your sales force and haven't replenished them. And so ultimately, you need a relationship and you need to be present if you want to go push. And I think we have to reestablish our field if we're going to lift that up.

Okay.

In North America, I -- in Europe, it's pushing really well, and we have an educated team over there that's doing a great job only to give a [indiscernible] at Saudi. But then you do have the dynamics within aligners. And I think over the weekend, you heard -- one of our competitors talking about it. There is obviously some pocket share -- consumer pocket share elements that are taking place, and you are seeing that primarily in the U.S.

Okay. And as you think about your angle in terms of your strategy and primarily focused on the GP side of the market, how do you think about ortho expansion as sort of the offering beyond kind of where you're targeting now?

We need to go heavier at ortho than we are today.

Yes. Okay, point taken. And then as we think about the overall -- let's switch gears a little bit. So the distribution strategy, you mentioned earlier about going to dealers and going to kind of distribution in terms of getting potentially better economics. Obviously, the prior CEO is vocal about that to some extent in terms of the relationship with Patterson. Where does that stand now in terms of the relationship? And how do you value distribution? How do you leverage distributors more broadly? And how is that going to change?

Yes. And I would say to be determined. But when you look at dealers, you say, listen, they're your partners, they're your competition, they're your customers, all in one. And they're not going away. And so I think how we decide to go to market either with them or without them is something I'm working on. I've had a chance to actually connect with Patterson, CEO new, and also Henry Schein.

And we're just working through conversations about what makes the most sense with that. I'm not signaling anything to you yet other than I'm learning and figuring out what to do with that. But I think ultimately, we want to say, how can you rapidly penetrate the market and have sustained growth? What's the best way to do that? And I'm still in that process of evaluating direct versus other alternatives.

Okay. Would you ever go fully direct? I think it's like 2/3 of your business today is through distribution. Is that roughly about right? Or where does that go over time then?

Yes. Your general practices tend to be right now through the dealers. And then you tend to be on your specialties more direct. And the answer is, I don't know. Give me some more time I'm evaluating it and seeing where it is. Are you capable of doing it? Is the best thing for the customer experience to go direct or not? Does it create the best return to the shareholders to do that? And we're just in the middle of having those conversations now. That's not going to be a long process, but probably need another couple of months of figuring that out before I know where I want to be.

Okay. And there was an ongoing kind of sales force excellence program, restructuring initiatives going -- like can you give us what's currently going on? What was halted from before? Are you reassessing things? Where do we stand now in terms of some of your either sales force excellence program, what's been implemented, what's going forward? And then how do we think about your own kind of initiatives that you're adding on or supplementing to what it's...

Well, I think a couple of things. I think some of the margin achievement that's been done have been through unilateral cuts throughout the company. And both Matt and I are going back and saying, we need to invest more in sales force and innovation and less in the back office corporate thing. I think that's one shift that we're going to do. It's going to put more feet on the street and fill more positions on the sales force side.

I think that increased training for the sales force and increased training for the customers are 2 keys that we need to put in and figure out how to fund through reengineering of the P&L. But I would say that we're continuing down on those paths right now.

Any update on the German audit?

Actually, I'll let you do that.

Yes, I mean the way that we've been talking about the German audit is exactly the same, which is we're continuing to be very open in terms of the overall dialogue. We're providing all information that's being requested. We have taken the stance that we followed a similar practice in tax structuring that almost every other company doing an acquisition in Europe has done. And so approaching it from that basis and being very collaborative, we're expecting it to be resolved, but sometime these things don't have a very good track record of this time frame or that time frame. It just takes time.

Got it. And then, I'll end with a broader one for each of you, if you could answer what is -- has been most surprising since you've come on board?

Actually, for me, it was the willingness of the entire team at different levels to want to drive forward and have some fight in them. I wasn't sure what I would inherit when I came in, and I started doing skip levels down to the reps actually in the U.S. or in Europe or manager level, not up to the VP. And when I see the willingness of the team to actually come along and improve the things we've talked about, they're looking for people who can make decisions and stay with those decisions and they go execute.

That was stronger than I anticipated. I thought there'd be some resistance or maybe just retired and you are CEO #27 and here we go. And that wasn't the case. They really are saying, here's what we see the issues are in our day-to-day. Can you help us improve these things? And I like that because this is a mindset shift. This turnaround is not about product, it's about mindset. And when I look at the right level, they have the right mindset. We just have to get some fight and some swagger back into the company to get this moving.

From my perspective, I think when you enter these types of situations, you often think, well, there's got to be some talent gaps. We have an extremely talented group of people who have great backgrounds across this industry and other industries, many of which just have seen excellence and want to pursue excellence again. And that want was much stronger than I thought it was -- well, it is much stronger than I thought it was going to be when I was showing up. So happy to see that here.

Okay. Great. Thank you so much. Appreciate the time today.

Thanks for having us.