Dental business rides third quarter rollercoaster

Jeremy Booth, Dental Tribune International

Fri. 1. December 2023

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LEIPZIG, Germany: The dental industry is known for its resistance to economic recession; however, as dentists know, no clinic is an island. In the third financial quarter of this year, dentists in developing dental markets experienced better patient flow than their counterparts in some of the world’s wealthiest nations did. Softening consumer trends—particularly in the area of orthodontics—led to ups and downs and some major surprises for the world’s largest dental manufacturers, causing some of them to lower their earnings forecasts for the full year.

The stars fall out of alignment

In September, the world’s largest clear aligner treatment provider alerted investors to a substantial lull in adult patient volumes. “Dental practices and industry research firms have reported deteriorating trends, including decreased patient visits and increased patient cancellations, along with fewer orthodontic case starts overall, especially among adult patients,” Align Technology CEO Joseph Hogan told analysts during the company’s webcast quarterly earnings call. Hogan pointed to a report by business analytics provider Gaidge, which showed that new orthodontic appointments and case starts in North America in September were down by 8.7% and 6.9% year on year, respectively. It was one of very few occasions in which Align has painted a dreary picture for investors. “For our clear aligner business, we expect clear aligner teen volume to be seasonally lower in [the fourth quarter], and we don’t anticipate improvement in adult volumes,” Chief Financial Officer John Morici conceded.

The company’s results for the period seemed to be a continuation of its historically stellar performance—new revenues increased by 7.8% year on year to reach US$960 million (€911 million), and a record 221,000 of its total shipment of 602,000 clear aligner cases were shipped to teens. Analysts had expected more, however, and a lowering of Align’s full-year earnings forecast was a clear signal that the market remains shaky.

The third quarter was also marked by the shock announcement that the flag-bearer for at-home clear aligner therapy had filed for bankruptcy protection. Plagued by a litany of lawsuits and economic setbacks, SmileDirectClub was due to cease its US operations if it could not secure a financial lifeline by late November. The period had lapsed at the time of writing without word regarding the company’s fate. In what Bloomberg described as a “textbook case of value destruction”, the company was valued at close to US$9 billion in 2019 and had just US$5 million in cash and nearly US$900 million in debt when the filing was submitted on 29 September.

Earlier this year, Chinese health authorities began procuring dental implants in bulk, slashing unit prices and profit margins. (Image: humphery/Shutterstock)

China and Latin America boost results at Straumann

Third-quarter sales results from Straumann Group showed 1.5% year-on-year growth in the company’s home market of Europe, the Middle East and Africa (EMEA) and a 2.9% year-on-year decline in North America. The Asia Pacific and Latin America regions performed better for Straumann, growing by 12.6% and 15.9% year on year, respectively. On an organic basis—where the effects of currencies and acquisitions are excluded—sales grew by 6.6% in EMEA, by 26.8% in Asia Pacific and by 19.1% in Latin America and declined by 5.5% in North America. Sales for the period totalled CHF 570 million (€589 million), and this represented a year-on-year organic increase of 11.4%.

Dental implant sales were Straumann’s main driver of growth in the EMEA region, and the company said that sales in North America had been strong, despite the impact of high inflation on consumer spending, which negatively influenced demand for full-arch implant and orthodontic treatments. In the Asia Pacific region, strong growth was recorded in the Australian, Chinese, Indian and Japanese markets, and China’s volume-based procurement of dental implants led to what the company called “significant volume increases”. Sales of Neodent in Brazil continued to boost Straumann’s growth in the Latin America region, and orthodontic sales in Mexico, Colombia and Chile contributed to growth in the region.

CEO Guillaume Daniellot noted in a call with analysts that “[the] current geopolitical and macroeconomic uncertainties, which influenced the patient flow observed in the third quarter, are expected to continue generating different dynamics in our different regions”. However, Straumann would not be revising its full-year earnings guidance, Daniellot said.

Dentsply Sirona’s 20% growth in China offset by weakness at home

Net sales at Dentsply Sirona were flat during the period, amounting to US$947 million. CEO Simon Campion described the quarter as one of “challenging macroeconomic conditions”, and Chief Financial Officer Glenn Coleman pointed to weaker patient traffic in markets that typically lead the company’s sales growth. US sales declined by around 1%, despite strong sales of clear aligners and CAD/CAM equipment, and organic sales growth in Europe declined by 2.8%, owing largely to constrained spending in Germany. The US and Germany are the company’s two largest markets, representing around 75% of total revenue.

Things were better for Dentsply Sirona in China and Latin America. The company grew its Chinese business by 20% during the period, owing to a 30% sequential gain in the volume of dental implants. “Latin America, a smaller but fast-growing region for us, was another bright spot and grew [by] double digits with improved performance in Brazil and Mexico,” Coleman said.

Citing negative economic and dental trends, Dentsply Sirona lowered its financial outlook for 2023, anticipating full-year organic sales growth of 1% instead of the previously announced 3%. The company is in the midst of rehauling its operations, and it posted a net loss of US$266 million for the period. This was a 75% improvement compared with its net loss of just over US$1 billion for the same period last year, both being attributable to non-cash charges for the impairment of goodwill and other intangible assets.

Envista expects slight decline in core sales growth

Third-quarter sales at Envista Holdings Corp. were flat at US$631 million—core sales having increased by 0.8%—and the company observed decreased demand for its dental products in the US. Principal Financial Officer Stephen Keller told analysts that the result reflected continuing growth in Envista’s specialty products and technology segment, offset by a low single-digit decline in sales of its equipment and consumables.

The company’s emerging markets grew by low single digits—strengthened by solid growth in China—and a decline in sales was seen in Russia. Envista’s orthodontic business grew by double digits during the period, helped by the rapid expansion of the Spark clear aligner system market, and its traditional bracket and wire business declined by low single digits. Global sales of dental implants kept pace with market performance in most geographies, but were offset by weakness in premium and value implant sales in the US.

“While our results in North America were disappointing, we believe this will be temporary.”—Amir Aghdaei, CEO, Envista

CEO Amir Aghdaei told analysts: “While our results in North America were disappointing, we believe this will be temporary.” He said that the company’s customers around the world were mindful of the current macroeconomic climate and that Envista had witnessed a decline in high-end procedures and in adult orthodontic cases. “Clinicians are cautious. They’re very cautious about inventory management in their offices around implant[s] and bracket[s] and wires,” Aghdaei said.

Envista now expects a slight year-on-year decline in core sales growth for the full year, and Keller said that the revision “reflects the increased macroeconomic risks in our developed markets, continued challenges in Russia and the additional risks brought on by the new conflict in the Middle East”.

“We see bright spots in the business”

The third quarter was marked by increased cancellations and a slump in patient traffic in Europe and the US, as well as lower demand for large imaging equipment across international markets. Nonetheless, dental CEOs remained upbeat. Campion told analysts: “We see bright spots in the business.” Stanley Bergman, chairman of the board and CEO of Henry Schein, said that the company believed that the dental and medical markets “are relatively recession-resilient”.

Henry Schein’s global dental sales reached US$1.9 billion during the period, representing year-on-year growth of 5.4%. The dental giant noted a sales slowdown in the US and a global fall of 2% in internal sales of dental equipment in local currencies. In October, the company fell victim to a cyber-attack that affected its distribution and e-commerce infrastructure, leading the company to revise its full-year sales forecast to a year-on-year decline of 1% to 3% rather than the prior guidance of 1% to 3% sales growth.