DENTSPLY SIRONA Inc. — FY2023 Form 10-K Summary
Business context and reporting period
DENTSPLY SIRONA is a global manufacturer of professional dental equipment, technologies, consumables, clear aligners, implants and continence-care products, operating in more than 150 countries. This Form 10-K covers the fiscal year ended December 31, 2023, including fourth-quarter results. Effective April 1, 2023, the Company adopted four recast reportable segments: Connected Technology Solutions, Essential Dental Solutions, Orthodontic and Implant Solutions, and Wellspect Healthcare.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $3.965 billion | $3.922 billion | +1.1%; organic sales +2.2% |
| Gross profit | $2.086 billion | $2.127 billion | -1.9% |
| Gross margin | 52.6% | 54.2% | -160 basis points |
| Operating income/(loss) | $(85) million | $(937) million | Improved primarily from lower impairment charges |
| Net loss attributable to DENTSPLY SIRONA | $(132) million | $(950) million | Improved by $818 million |
| Diluted loss per share | $(0.62) | $(4.41) | Improved |
| Cash from operating activities | $377 million | $517 million | -$140 million |
| Capital expenditures | $149 million | $149 million | Flat |
| Cash and cash equivalents | $334 million | $365 million | -$31 million |
| Net debt | $1.784 billion | $1.579 billion | +$205 million |
| Net debt/total capitalization | 35.1% | 29.3% | Higher leverage |
Gross profit was pressured by manufacturing and input-cost inflation, higher warranty costs, inventory-obsolescence charges and $16 million of foreign-currency translation headwinds. SG&A increased 1.5% to $1.613 billion, while R&D increased 5.9% to $184 million, or 4.6% of sales.
Segment performance and material changes
| Segment | 2023 sales | Organic sales change | Adjusted operating income |
|---|---|---|---|
| Connected Technology Solutions | $1.169 billion | -2.8% | $101 million, down 37.5% |
| Essential Dental Solutions | $1.468 billion | +3.6% | $478 million, up 2.4% |
| Orthodontic and Implant Solutions | $1.040 billion | +5.1% | $156 million, down 19.3% |
| Wellspect Healthcare | $288 million | +7.3% | $87 million, up 19.9% |
- Connected Technology Solutions declined because of lower imaging and instrument volumes, particularly in the United States and Europe, competitive pressure and weaker equipment demand.
- Essential Dental Solutions benefited from price increases, stronger preventive consumables and new product launches, partly offset by lower restorative and endodontic volumes.
- Orthodontic and Implant Solutions benefited from higher aligner volumes and increased implant volumes in China, but margins declined because of higher selling expenses, inflation and foreign-exchange effects.
- Wellspect Healthcare grew on higher volumes, new products, price increases and manufacturing leverage.
- U.S. sales increased 3.2%, while Europe declined 0.6%; Germany represented approximately 11% of Company sales and remained particularly affected by recessionary conditions.
Cash flow, debt and liquidity
Operating cash flow declined to $377 million, primarily because of lower collections, higher costs and operating expenses, and payment timing. Days sales outstanding increased from 55 to 59 days, while inventory days improved from 137 to 126 days. Investing cash use was $89 million, and financing cash use was $307 million.
Total borrowings increased by $174 million during 2023. At year-end, current debt was $322 million and long-term debt was $1.796 billion. The Company had $225 million outstanding under its commercial paper program, $20 million under other short-term arrangements and approximately $499 million of remaining borrowing capacity. The $700 million revolving credit facility expires in May 2028. The Company was in compliance with its debt covenants at December 31, 2023.
Management stated that available cash, operating cash flow and existing borrowing facilities should fund operations, capital expenditures and debt service for the next twelve months. Planned 2024 capital expenditures are approximately $170 million to $200 million, including global ERP implementation, equipment upgrades and capacity expansion.
Guidance, outlook, commentary and unusual items
- The filing does not provide a clear quantitative 2024 revenue or earnings guidance range.
- Management expects inflation in raw materials and wages to continue into 2024, with ongoing pressure from interest rates, weaker discretionary dental demand and challenging conditions in Germany.
- A restructuring plan approved in February 2023 targets approximately $200 million of annual cost savings and an 8% to 10% reduction in the global workforce. The plan is expected to be substantially completed by mid-2024. Total one-time charges are estimated at $115 million to $135 million; $67 million of restructuring and other costs were recorded in 2023.
- The Company began implementing a new global ERP system, which is expected to require several years, significant capital and execution resources, and may create implementation, disruption and cost-overrun risks.
- The Company recorded $307 million of goodwill and intangible-asset impairment charges in 2023, including a $291 million goodwill write-off for Connected Technology Solutions and $16 million of indefinite-lived intangible-asset impairments. Goodwill was $2.438 billion and indefinite-lived intangible assets were $452 million at year-end.
- The Company repurchased approximately 8.8 million shares for $300 million in 2023 and had $1.44 billion of remaining repurchase authorization at December 31, 2023. Dividends paid were $116 million.
- Products manufactured at Israeli facilities represented approximately 3% of consolidated sales; the facilities remained operational, but the Israel-Hamas conflict could affect production and supply. Russia and Ukraine represented approximately 2% of consolidated sales, with $42 million of cash held in Russia subject to transfer restrictions.
Risks and contingencies
- Previously reported material weaknesses in internal control over financial reporting were remediated as of December 31, 2023, and management and PwC concluded that internal controls were effective. Recurrence or additional weaknesses could impair reporting reliability and investor confidence.
- An SEC investigation related to the Company’s 2022 internal investigation remains ongoing. Securities class actions and derivative litigation concerning revenue recognition, distributor rebates and inventory disclosures also remain pending. The Company cannot estimate potential losses.
- Key operating risks include macroeconomic weakness, inflation, interest rates, foreign exchange, distributor concentration, supply-chain disruptions, product quality, regulatory approvals, cybersecurity, data privacy, intellectual property, reimbursement and direct-to-consumer aligner regulation.
- Henry Schein represented 14% of 2023 net sales; together Henry Schein and Patterson represented approximately 21% of annual revenue.
- The Company had $335 million of non-cancelable purchase commitments, $2.982 billion of scheduled contractual cash obligations and $40 million of unrecognized tax benefits excluded from the contractual-obligations table because settlement timing was uncertain.
- An IRS examination of 2015–2016 tax years includes a proposed adjustment that could result in approximately $2 million of additional federal tax, excluding interest, although the Company intends to contest it and has not accrued a liability.
Most important facts for investors to verify
- Confirm fourth-quarter revenue, margins, cash flow and segment results in the quarterly financial statements and compare them with full-year trends.
- Assess whether the Connected Technology Solutions decline and related impairment indicate continuing structural weakness or primarily cyclical pressure.
- Track execution of the restructuring plan, remaining charges, workforce reductions and realization of the targeted $200 million annual savings.
- Monitor leverage, commercial-paper usage, debt maturities and compliance with the 0.6 debt-to-capital covenant and 3.0 times interest-coverage covenant.
- Review developments in the SEC investigation, securities litigation, derivative litigation and related legal costs.
- Evaluate cash conversion, accounts-receivable days, inventory reserves and the planned increase in 2024 capital expenditures.
- Reassess goodwill and indefinite-lived intangible-asset impairment sensitivity to interest rates, demand, margins and foreign exchange.