DENTSPLY SIRONA Inc

Previous wording

The terrorist attacks by Hamas militants crossing the border from Gaza to Israel in October 2023 and the subsequent military response by the Israeli government in Gaza has resulted in significant unrest and uncertainty within that region. In April 2024, the state of Israel was also a target of a coordinated missile and drone direct attack launched by the Republic of Iran. These events have heightened the possibility that escalating violence and involvement of other terrorist groups or foreign powers in the region may further impact our employees and operations. Additionally, in May 2024, in response to ongoing military actions, the government of Turkey implemented restrictions on the import of goods manufactured within Israel for sale in the Turkish market. Sales of our products made in Israel and sold in Turkey represent less than 2% of our global sales of Implants & Prosthetics, but this product category is an area of relatively high potential growth. It is not clear when these restrictions will be lifted or if other countries will institute similar restrictions.

Current wording

The terrorist attacks by Hamas militants crossing the border from Gaza to Israel in October 2023 and the subsequent military response by the Israeli government in Gaza has resulted in significant unrest and uncertainty within that region. During the course of 2024, the state of Israel has also been a target of coordinated missile and drone attacks launched by the Republic of Iran and by Iran’s terrorist proxy organization in Lebanon. These events have heightened the possibility that escalating violence and involvement of other terrorist groups or foreign powers in the region may further impact our employees and operations. Additionally, in May 2024, in response to ongoing military actions, the government of Turkey implemented restrictions on the import of goods manufactured within Israel for sale in the Turkish market. Sales of our products made in Israel and sold in Turkey represent less than 2% of our global sales of Implant & Prosthetic Solutions, but this product category is an area of relatively high potential growth. It is not clear when these restrictions will be lifted or if other countries will institute similar restrictions.

Previous wording

The Company’s operations in Israel consist of two manufacturing facilities for implants products, with one site in northern Israel and one in southern Israel, which together employ approximately 300 associates. These facilities remain open and continue to operate. We may, however, decide to discontinue production at these facilities for the safety of our employees, or we could face future production slowdowns or interruptions at either location due to the impacts of the war, including personnel absences as a number of our employees have been called to active military duty, or due to other resource constraints such as the inability to source materials for production.

Current wording

The Company’s operations in Israel consist of two manufacturing facilities for implants products, with one site in northern Israel and one site in southern Israel, which together employ approximately 350 associates. These facilities remain open and continue to operate. We may, however, decide to discontinue production at these facilities for the safety of our employees, or we could face future production slowdowns or interruptions at either location due to the impacts of the war, including personnel absences as a number of our employees have been called to active military duty, or due to other resource constraints such as the inability to source materials for production.

Previous wording

For the three months ended June 30, 2024, net sales of products produced at these sites comprised approximately 4% of consolidated net sales and 13% of the net sales of the Orthodontic and Implant Solutions segment. Net assets within Israel total $198 million as of June 30, 2024, consisting primarily of acquired technology, cash, inventory, and property, plant and equipment associated with our operations in country. Overall, the Company’s operations in Israel have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the six months ended June 30, 2024. The Company continues to monitor developments and prepare contingency plans to limit potential disruption to its operations.

Current wording

For the three months ended September 30, 2024, net sales of products produced at these sites comprised approximately 3% of consolidated net sales and 12% of the net sales of the Orthodontic and Implant Solutions segment. Net assets within Israel total $179 million as of September 30, 2024, consisting primarily of acquired technology, property, plant and equipment, cash, and inventory associated with our operations in country. Overall, the Company’s operations in Israel have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or fixed asset impairments through the nine months ended September 30, 2024 due to the conflict. The Company continues to monitor developments and prepare contingency plans to limit potential disruption to its operations.

Previous wording

While Israel does not constitute a material portion of our business, a significant escalation or expansion of the conflict’s current scope and economic disruption could result in loss of sales and market position, disrupt our supply chain, broaden inflationary costs including energy prices, and have a material adverse effect on our results of operations, including impairment of the net assets in Israel or goodwill within the Implants & Prosthetics reporting unit.

Current wording

While Israel does not constitute a material portion of our business, a significant escalation or expansion of the conflict’s current scope and economic disruption could result in loss of sales and market position, disrupt our supply chain, broaden inflationary costs including energy prices, and have a material adverse effect on our results of operations, including impairment of the net assets in Israel or goodwill within the Implant & Prosthetic Solutions reporting unit.

Previous wording

In February 2022, because of the invasion of Ukraine by Russia, economic sanctions were imposed by the United States, the European Union, and certain other countries on Russian financial institutions and businesses. Due to the medical nature of our products, the current sanctions have not materially restricted our ability to continue selling many of our products to customers located in Russia. The Company also sources certain raw materials and components from Russia and Ukraine, and has taken actions to minimize any adverse impacts from disrupted supply chains related to these items. The Company’s operations in Ukraine consist primarily of R&D activities, which continue uninterrupted from other locations to focus on the safety of employees. Overall, the Company’s operations in Russia and Ukraine have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the three months ended June 30, 2024 as a result of the conflict.

Current wording

In February 2022, because of the invasion of Ukraine by Russia, economic sanctions were imposed by the United States, the European Union, and certain other countries on Russian financial institutions and businesses. Due to the medical nature of our products, the current sanctions have not materially restricted our ability to continue selling many of our products to customers located in Russia. The Company also sources certain raw materials and components from Russia and Ukraine and has taken actions to minimize any adverse impacts from disrupted supply chains related to these items. The Company’s operations in Ukraine consist primarily of R&D activities, which continue from locations that focus on the safety of employees. Overall, the Company’s operations in Russia and Ukraine have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the nine months ended September 30, 2024 as a result of the conflict.

Previous wording

For the three months ended June 30, 2024, net sales in Russia and Ukraine were approximately 2% of our consolidated net sales, and net assets in these countries were $76 million. These net assets include $44 million of cash and cash equivalents held within Russia as of June 30, 2024. Due to currency control measures imposed by the Russian government which include restrictions on the ability of companies to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, we may be limited in our ability to transfer this cash balance out of Russia without incurring substantial costs.

Current wording

For the three months ended September 30, 2024, net sales in Russia and Ukraine were approximately 3% of our consolidated net sales, and net assets in these countries were $68 million as of September 30, 2024. These net assets include $40 million of cash and cash equivalents held within Russia as of September 30, 2024, as well as inventory and trade accounts receivable. Due to currency control measures imposed by the Russian government, which include restrictions on the ability of companies to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, we continue to be limited in our ability to transfer this cash balance out of Russia without incurring substantial costs. Additionally, beginning in September 2024, as a result of further restrictions by European financial institutions on receiving payments from Russia, our capacity to receive intercompany payments for the delivery of our products into Russia has been partially reduced, which further limits our ability to use cash received from sales in Russia for our general purposes. It is unclear whether the remaining financial institutions which the Company relies upon for bank transfers from Russia will ultimately be able to continue facilitating payments, or for how long. If these restrictions on cash transfers from Russia worsen, or if we are not able to obtain long-term relief from these restrictions, we may need to take additional actions, including potential suspension of our business in Russia.

Previous wording

While neither Russia nor Ukraine constitutes a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could result in a loss of sales, disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations.

Current wording

A significant escalation or expansion of economic disruption from the conflict could interrupt our supply chain, broaden inflationary costs, impair our assets located in Russia, result in a loss of sales, and have a material adverse effect on our results of operations.

Previous wording

The challenging macroeconomic conditions have also negatively impacted demand for the Company’s products and may continue to do so in the future. Specifically, higher interest rates have put pressure on the ability and willingness of our customers to obtain financing for equipment purchases, which affects volumes for these products. The higher cost of borrowing has also reduced patient demand for elective dental procedures, which affects sales of the Company’s offerings more broadly. The Company has also faced additional competitive pressure for lower-priced options for investments in new equipment by dental practices, in particular for imaging products. While the Company has taken steps to address competitive pressures, such as the reintroduction of its Orthophos SL 2D and 3D products, these trends may continue. While patient volumes have largely remained stable in the United States, the impact of macroeconomic declines and high interest rates has been particularly apparent in Germany, which represented 10% of the Company’s sales for the six months ended June 30, 2024. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending. Although conditions including inflation have recently improved marginally, demand for investments in new dental equipment continues to be weak, and recent economic forecasts have delayed the projected timing for recovery and more meaningful growth beyond the next two quarters. The Company therefore believes the challenging macroeconomic and market conditions in Germany are likely to persist and negatively impact sales of equipment, in particular through the remainder of 2024.

Current wording

The challenging macroeconomic conditions have also negatively impacted demand for the Company’s products and may continue to do so in the future. Specifically, higher interest rates have put pressure on the ability and willingness of our customers to obtain financing for equipment purchases, which affects volumes for these products. The higher cost of borrowing has also reduced patient demand for elective dental procedures, which affects sales of the Company’s offerings more broadly. The Company has also faced additional competitive pressure for lower-priced options for investments in new equipment by dental practices, in particular for imaging products. While the Company has taken steps to address competitive pressures, such as the reintroduction of its Orthophos SL 2D and 3D products, these trends may continue. While patient volumes have largely remained stable in the United States, the impact of macroeconomic declines and high interest rates has been particularly apparent in Germany, which represented 10% of the Company’s sales for the nine months ended September 30, 2024. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending. Although conditions, including inflation, appeared to improve marginally in the first half 2024, demand for investments in new dental equipment continues to be weak, and economic forecasts by the German government now project there will be no growth through the end of 2024. The Company therefore believes the challenging macroeconomic and market conditions in Germany are likely to persist and negatively impact sales of equipment in the fourth quarter.

Previous wording

RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2024 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2023

Current wording

RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

Previous wording

The decrease in organic sales for both the three and six months ended June 30, 2024 was primarily due to weaker demand for products in Connected Technology Solutions, particularly outside the United States, partially offset by growth in Wellspect Healthcare and Orthodontic and Implant Solutions. The organic sales decrease for the six months ended June 30, 2024 was also driven by weaker demand for Essential Dental Solutions, which improved during the second quarter primarily due to steadier patient traffic in Europe.

Current wording

The decrease in organic sales for the nine months ended September 30, 2024 was primarily due to weaker demand for products in Connected Technology Solutions, particularly outside the United States, partially offset by growth in the Wellspect Healthcare segment and orthodontics products. The organic sales decrease for the nine months ended September 30, 2024 was also driven by weaker demand for implant and prosthetic solutions, primarily in the United States and Europe.

Previous wording

The decrease in organic sales for both the three and six months ended June 30, 2024 was primarily due to lower volumes of imaging equipment and treatment centers across all three regions, driven in part by competitive pressures including pricing as well as unfavorable economic conditions across our major markets. The organic sales decrease for the six months ended

Current wording

The decrease in organic sales for both the three and nine months ended September 30, 2024 was primarily due to lower volumes of imaging equipment and treatment centers across all three regions, driven in part by competitive pressures including pricing as well as unfavorable economic conditions. The organic sales decrease for the three months ended September 30, 2024 was lower than the decrease for the nine months ended September 30, 2024 as a result of higher volumes of treatment centers sold in Europe and higher volumes of CAD/CAM equipment sold in the United States and Rest of World during the three months ended September 30, 2024.

Previous wording

The increase in organic sales for both the three and six months ended June 30, 2024 was primarily driven by higher volumes of orthodontic aligners, particularly in the United States and Europe, partially offset by the impact of regulatory developments on sales of direct-to-consumer aligners as described below. Organic sales also benefited from stronger demand for implants products in Rest of World, partially offset by lower volumes for implants and prosthetics products in Europe.

Current wording

The increase in organic sales for the nine months ended September 30, 2024 was primarily driven by higher volumes of orthodontics products in all regions, coupled with an increase in demand for implants products in Rest of World. This was partially offset by lower volumes of implants and prosthetics products in the United States and Europe.

Previous wording

Legislative changes in Nevada relating to teledentistry required us to discontinue new patient recruitment for our current direct-to-consumer aligner business model in the state during the second quarter. Additionally, enacted and pending legislative changes in certain other states including Florida and Illinois are expected to impact sales in the second half of 2024. These changes would require certain adjustments to our business model, some of which have been made preemptively and have started to negatively impact sales of direct-to-consumer aligners in those states. These adjustments include developing new features and modifying our process for engaging with customers as part of our direct-to-consumer aligner business models in response to existing and pending legislation. Our response to these legislative developments resulted in reduced sales of direct-to-consumer orthodontic aligners by approximately $6 million during the second quarter of 2024, with a similar estimated impact for each of the remaining quarters of 2024, which we expect will be more than offset by organic growth. Future legislative or regulatory changes in other states, or changes in the interpretation of existing legislation by regulators, may further impact the current business model and operations of our direct-to-consumer aligner business or require us to evaluate patient recruitment strategies in certain states. We continue to monitor these legal and regulatory developments to understand their potential impact on the operations of our direct-to-consumer aligner business. For additional information, see Part I, Item 1, “Business - Regulation” and Part 1, Item 1A, “Risk Factors” in our 2023 Form 10-K.

Current wording

Prior to the suspension of Byte aligner sales and shipments on October 24, 2024, as discussed under Note 15, Subsequent Events, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q, sales for our direct-to-consumer aligner business continued to be negatively impacted in the third quarter by changes made to our operating model in response to legislative trends. Beginning in the second quarter, legislative changes in Nevada required us to discontinue new patient recruitment for our current direct-to-consumer aligner business model in that state. Additionally, laws relating to teledentistry enacted in Florida and Illinois during the third quarter prompted us to make certain adjustments to our processes and workflow for engaging with customers and other parts of our direct-to-consumer aligner business model. Our response to these regulatory and legislative developments has resulted in reductions of sales of direct-to-consumer orthodontics products by approximately $15 million during the first nine months of 2024. We expect these adjustments would have continued to have a negative impact in the fourth quarter of 2024 and into 2025 prior to the suspension of sales as discussed under Note 15, Subsequent Events, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q. We are also monitoring potential legislative initiatives underway in additional states, which could result in rules similar to those imposed in Florida and Illinois being enacted in 2025. Future legislative changes at the state or federal level, or changes in the interpretation of existing legislation by regulators, may further impact the current business model and operations of our direct-to-consumer aligner business or require us to evaluate patient recruitment strategies in certain states. We continue to monitor these legal developments. For additional information, see Part I, Item 1, “Business - Regulation” and Part 1, Item 1A, “Risk Factors” in our 2023 Form 10-K as updated in Part II, Item 1A “Risk Factors” in this Form 10-Q.

Previous wording

The increase in organic sales for both the three and six months ended June 30, 2024 was driven by higher volumes in all regions, particularly in the United States and Europe, partly driven by new product launches and the benefit of an initial stocking order from a new distributor.

Current wording

The increase in organic sales for the nine months ended September 30, 2024 was driven by higher volumes in all regions, particularly in Europe, primarily driven by new product launches.

Previous wording

The decrease in organic sales for the three months ended June 30, 2024 was primarily driven by lower volumes of imaging equipment, partially due to the timing of sales to dealers, and lower demand for Essential Dental Solutions products. These decreases were partially offset by higher volumes of orthodontic aligners within our direct-to-consumer aligner solutions business. Volumes for imaging products in the three months ended June 30, 2024 were negatively impacted by a seasonal reduction in distributor inventory of approximately $4 million compared to a build of approximately $7 million in the three months ended June 30, 2023. Conversely, volumes for CAD/CAM products were positively affected by a lower seasonal reduction in dealer inventory levels of approximately $16 million in the three months ended June 30, 2024 compared to approximately $27 million in the three months ended June 30, 2023. Distributor inventory levels for both imaging and CAD/CAM products as of June 30, 2024 approximate historical averages.

Current wording

Volumes for imaging products in the three months ended September 30, 2024 were positively impacted by a higher seasonal build in distributor inventory of approximately $13 million, compared to a build of approximately $8 million in the three months ended September 30, 2023. Similarly, volumes for CAD/CAM products were positively affected by a build in distributor inventory levels of approximately $35 million in the three months ended September 30, 2024, compared to approximately $20 million in the three months ended September 30, 2023, due in part to distributor stocking of our new intraoral scanner, as well as lower than expected retail demand in the third quarter. Levels of distributor inventory for CAD/CAM products at September 30, 2024 are approximately $24 million higher than the levels at September 30, 2023. We expect levels to return to historical averages by the end of the fourth quarter.

Previous wording

The increase in organic sales for the six months ended June 30, 2024 was primarily driven by higher volumes of orthodontic aligners within our direct-to-consumer aligner solutions and CAD/CAM products, as well as price increases for these products. These increases were mostly offset by lower volumes for Essential Dental Solutions products, in part due to a benefit from satisfying backlog orders during the first quarter of 2023 and lower volumes of imaging equipment. Volumes for imaging products in the six months ended June 30, 2024 were negatively impacted by a seasonal reduction in distributor inventory of approximately $11 million compared to a build of approximately $7 million in the six months ended June 30, 2023. Conversely, volumes for CAD/CAM products were positively affected by a lower seasonal reduction in dealer inventory levels approximating $7 million in the six months ended June 30, 2024 compared to approximately $18 million in the six months ended June 30, 2023.

Current wording

The increase in organic sales for the nine months ended September 30, 2024 was primarily due to an increase in demand for certain orthodontics products and CAD/CAM products, partially offset by a decrease in demand for implants and imaging products. Volumes for imaging products in the nine months ended September 30, 2024 included an increase in distributor inventory during the period of approximately $2 million compared to a build of approximately $15 million in the nine months ended September 30, 2023. Volumes for CAD/CAM products were positively affected by build in distributor inventory levels of approximately $28 million in the nine months ended September 30, 2024, compared to approximately $2 million in the nine months ended September 30, 2023.

Previous wording

The decrease in organic sales for the six months ended June 30, 2024 was primarily driven by lower volumes of Connected Technology Solutions products, particularly CAD/CAM, competitive pricing, and lower demand in Japan. These decreases were mostly offset by increased volumes for implants products. The local volume-based procurement program in China continued to result in increased volumes for implants products, representing a marked improvement from the program's adverse impact in early 2023; however, the growth rates in China are expected to be more moderate for the remainder of 2024.

Current wording

The decrease in organic sales for the nine months ended September 30, 2024 was primarily driven by unfavorable pricing for Connected Technology Solutions products, particularly in Japan, where there was lower volume due to competitive pressures. These decreases were partially offset by increased volumes for implants products. The local volume-based procurement program in China resulted in increased volumes for implants products during the first half of 2024, representing a marked improvement from the program's adverse impact in early 2023; however, volumes in China declined in the third quarter due to current macroeconomic conditions.

Previous wording

Gross profit as a percentage of net sales for the three months ended June 30, 2024 declined primarily due to unfavorable mix in sales of CAD/CAM products, unfavorable manufacturing leverage from the reduced volumes, and higher manufacturing and input costs. This decline was partly offset by improved pricing and a decrease in warranty costs.

Current wording

Gross profit as a percentage of net sales for the nine months ended September 30, 2024 declined primarily due to lower volumes of imaging products, partially offset by improved pricing in Essential Dental Solutions.

Previous wording

Gross profit as a percentage of net sales for the six months ended June 30, 2024 declined as higher manufacturing and input costs were partially offset by improved pricing and a decrease in warranty costs.

Current wording

Higher manufacturing and input costs for the both the three and nine months ended September 30, 2024 were partially offset by a decrease in warranty costs.

Previous wording

The decrease in SG&A expenses for the six months ended June 30, 2024 was driven by lower headcount and incentive compensation costs, and professional service costs, as well as favorable impact from foreign currency exchange on operating expenses. The decreases were partially offset by higher selling costs, particularly in Orthodontic and Implant Solutions.

Current wording

The decrease in SG&A expenses for the nine months ended September 30, 2024 was driven by lower headcount costs, travel costs, and professional service costs. The decrease was mostly offset by higher selling costs, particularly in Orthodontic and Implant Solutions.

Previous wording

For the three and six months ended June 30, 2024, R&D expenses decreased as the Company continues to prioritize a disciplined approach with ongoing investments in digital workflow solutions, product development initiatives, and software development, including clinical application suite and cloud deployment. The Company expects to continue to maintain a level of investment in R&D that is at least 4% of annual net sales.

Current wording

For the three and nine months ended September 30, 2024, R&D expenses decreased as the Company continues to prioritize a disciplined approach with ongoing investments in digital workflow solutions, product development initiatives, and software development, including clinical application suite and cloud deployment. The Company expects to continue to maintain a level of investment in R&D that is at least 4% of annual net sales.

Previous wording

The Company did not record any impairment charges for the three months ended June 30, 2024. For the six months ended June 30, 2024, the Company recorded an intangible asset impairment charge of $6 million. The charge was related to indefinite-lived imaging product trade names within the Connected Technology Solutions segment. For further information see Note 13, Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Current wording

For the three months ended September 30, 2024, the Company recorded pre-tax goodwill impairment charges of $504 million for the Orthodontic Aligner Solutions and Implant & Prosthetic reporting units, both within the Orthodontic and Implant Solutions segment. The charge for the Orthodontic Aligner Solutions reporting unit was driven by adverse impacts from legislative trends pertaining to the Company’s direct-to-consumer aligner business, specifically the Company’s experience of slower than expected improvements in conversion rates for new aligner customers in the third quarter as the Company continued to modify its operating model in response to those trends. The charge for the Implant & Prosthetic Solutions reporting unit was driven by weakened demand, particularly in North American and European markets, in conjunction with competitive pressures and adverse impacts of ongoing global conflicts in certain markets, as well as lower long-term expectations for volumes of lab materials. These factors contributed to reduced forecasted revenues, lower operating margins, and reduced expectations for future cash flows in the near term for the two reporting units within the Orthodontic and Implant Solutions segment. For the nine months ended September 30, 2024, the Company also recorded an intangible asset impairment charge of $6 million. The charge was related to indefinite-lived imaging product trade names within the Connected Technology Solutions segment. For further information see Note 13, Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Previous wording

For the three and six months ended June 30, 2024, the Company recorded $21 million and $22 million, respectively, of restructuring and other costs, and for the three and six months ended June 30, 2023, the Company recorded $5 million and $64 million, respectively. These expenses in both years consisted primarily of severance costs in conjunction with the restructuring plan announced in February 2023. On July 31, 2024 the Company announced a new restructuring plan which will result in additional severance charges beginning in the third quarter. For further details refer to Material Trends in Capital Resources below, and Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Current wording

For the three and nine months ended September 30, 2024, the Company recorded $23 million and $45 million, respectively, of restructuring and other costs, and for the three and nine months ended September 30, 2023, the Company recorded $6 million and $70 million, respectively. The expenses in 2023 consisted primarily of severance costs in conjunction with the restructuring plan announced in February 2023 (the “2023 Plan”). On July 31, 2024, the Company announced a new restructuring plan (the “2024 Plan”). The expenses in 2024 primarily consist of severance costs in conjunction with the 2023 Plan and the 2024 Plan. For further details refer to Material Trends in Capital Resources below, and Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Previous wording

The decrease in segment adjusted operating income for both the three and six months ended June 30, 2024 is due to lower organic sales noted above as well as unfavorable manufacturing leverage from lower volumes and unfavorable product mix as a result of lower sales for certain higher margin CAD/CAM equipment. These decreases were partially offset by lower headcount-related costs and product warranty and return costs.

Current wording

The decrease in segment adjusted operating income for both the three and nine months ended September 30, 2024 is due to the lower organic sales noted above, unfavorable manufacturing leverage from lower volumes, and unfavorable product mix as a result of lower sales for certain higher margin CAD/CAM equipment products. These decreases were partially offset by lower headcount-related costs and product warranty and return costs.

Previous wording

The decrease in segment adjusted operating income for both the three and six months ended June 30, 2024 is due to higher distribution and manufacturing costs, an increase in advertising and selling costs, and higher headcount, primarily for key customer-facing roles for direct-to-consumer aligner solutions. This was partially offset for both periods by the organic sales increase primarily for orthodontics products noted above.

Current wording

The decrease in segment adjusted operating income for both the three and nine months ended September 30, 2024 is due to unfavorable geographic mix for implants products, higher distribution and manufacturing costs, an increase in advertising and selling costs, and higher headcount, primarily for key customer-facing roles in the orthodontics business. As noted above, operating income for the three months ended September 30, 2024 was unfavorably impacted by a decline in sales for implants and direct-to-consumer aligners.

Previous wording

The increase in segment operating income for both the three and six months ended June 30, 2024 is due to the increase in sales noted above, as well as margin improvement due to the favorable manufacturing leverage of higher volumes, partially offset by unfavorable foreign currency translation.

Current wording

The increase in segment adjusted operating income for the nine months ended September 30, 2024 was due to the increase in sales noted above, as well as margin improvement due to the favorable manufacturing leverage of higher volumes.

Previous wording

Interest expense, net for the three and six months ended June 30, 2024 decreased compared to the three and six months ended June 30, 2023, driven primarily by lower short-term and other borrowings.

Current wording

Interest expense, net for the three months ended September 30, 2024 decreased compared to the three months ended September 30, 2023. Interest expense, net decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, driven primarily by lower short-term and other borrowings.

Previous wording

Other (income) expense, net for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 is as follows:

Current wording

Other (income) expense, net for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 is as follows:

Previous wording

The effective tax rates for the three months ended June 30, 2024 and 2023 were 114.4% and (83.2%), respectively. For the six months ended June 30, 2024 and 2023, the rates were 81.2% and (239.3%), respectively. The effective tax rates for 2024 include discrete expenses related to a taxable gain from implementing an internal reorganization and reserves pertaining to ongoing foreign tax audits. In contrast, the rates for 2023 were significantly affected by the partial release of the valuation allowance on net operating loss carryforwards.

Current wording

The effective tax rates for the three months ended September 30, 2024 and 2023 were (3.3%) and (6.3%), respectively. For the nine months ended September 30, 2024 and 2023, the rates were (16.7%) and 12.1%, respectively. The effective tax rates for 2024 include discrete expenses resulting from implementing an internal reorganization. In contrast, the rates for 2023 were significantly affected by the partial release of the valuation allowance on net operating loss carryforwards.

Previous wording

For the three months ended June 30, 2024, the Company did not identify any indicators of a more likely than not impairment related to its goodwill balances which would require an interim quantitative assessment. Refer to Part I, Item 1, Note 13, Goodwill and Intangible Assets, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company's annual and interim goodwill impairment testing.

Current wording

Refer to Part I, Item 1, Note 13, Goodwill and Intangible Assets, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company's annual and interim goodwill impairment testing.

Previous wording

The fair values of certain indefinite-lived intangible assets within the Connected Technology Solutions segment continued to approximate carrying values as of June 30, 2024. Any further decline in key assumptions could result in additional impairments in future periods. The carrying value of these assets within the aforementioned segment was $203 million as of June 30, 2024.

Current wording

The fair values of certain indefinite-lived intangible assets within the Connected Technology Solutions segment continued to approximate carrying values as of September 30, 2024. Any further decline in key assumptions could result in additional impairments in future periods. The carrying value of these assets within the Connected Technology Solutions segment was $211 million as of September 30, 2024.

Previous wording

Cash provided by operating activities increased compared to the six months ended June 30, 2023, primarily as a result of changes in working capital including higher collections on accounts receivable due largely to timing of customer remittances, and a lower build of inventory during the current period. Cash provided by operating activities for the first six months of 2024 also includes receipt of a $42 million foreign income tax refund. These increases in operating cash were partially offset by other changes in working capital including higher payments to vendors during the current period due to timing. At June 30, 2024, the number of days for sales outstanding in accounts receivable decreased by 7 days to 52 days as compared to 59 days at December 31, 2023, and the number of days of sales in inventory increased by 2 days to 128 days at June 30, 2024 as compared to 126 days at December 31, 2023.

Current wording

Cash provided by operating activities increased compared to the nine months ended September 30, 2023, primarily as a result of changes in working capital, including higher collections on accounts receivable due largely to timing of customer remittances, management of inventory levels during the current period compared to an increase in the prior year, and lower payments to vendors during the current period due to timing. Cash provided by operating activities for the first nine months of 2024 also includes receipt of a $42 million foreign income tax refund. At September 30, 2024, the number of days for sales outstanding in accounts receivable increased by 3 days to 62 days as compared to 59 days at December 31, 2023, and the number of days of sales in inventory was 126 days at both September 30, 2024 and December 31, 2023.

Previous wording

The cash used in investing activities increased compared to the six months ended June 30, 2023, due to higher cash paid on settlement of derivatives of $9 million and higher capital expenditures of $14 million. The Company estimates capital expenditures to be in the range of approximately $170 million to $200 million for the full year 2024 and expects these investments to include additional implementation expenses for our new global Enterprise Resource Planning (“ERP”) system, equipment upgrades, and capacity expansion to support product innovation and consolidate operations for enhanced efficiencies.

Current wording

The cash used in investing activities increased compared to the nine months ended September 30, 2023, due to higher capital expenditures of $20 million and lower net cash proceeds on settlement of derivatives of $51 million. The Company estimates capital expenditures to be in the range of approximately $170 million to $200 million for the full year 2024 and expects these investments to include additional implementation expenses for the Company’s new global ERP system, equipment upgrades, and capacity expansion to support product innovation and consolidate operations for enhanced efficiencies.

Previous wording

The increase of cash used in financing activities compared to the six months ended June 30, 2023 was primarily driven by lower short-term borrowings in 2024 of $100 million. For both the six months ended June 30, 2024 and 2023, the Company made common stock repurchases totaling $150 million.

Current wording

The increase of cash used in financing activities compared to the nine months ended September 30, 2023 was primarily driven by additional treasury share repurchases of $100 million.

Previous wording

On November 7, 2023, the Board of Directors approved an increase to the authorized share repurchase program of $1.0 billion. At June 30, 2024, the Company had $1.29 billion of authorization remaining available for share repurchases. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company considers appropriate based upon prevailing market and business conditions and other factors. The Company intends to repurchase $100 million of shares in the third quarter of 2024, subject to market conditions. At June 30, 2024, the Company held 61.9 million shares of treasury stock.

Current wording

On November 7, 2023, the Board of Directors approved an increase to the authorized share repurchase program of $1.0 billion. At September 30, 2024, the Company had $1.19 billion of authorization remaining available for share repurchases. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company considers appropriate based upon prevailing market and business conditions and other factors. At September 30, 2024, the Company held 65.7 million shares of treasury stock.

Previous wording

At June 30, 2024, the Company had $454 million of borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million multi-currency credit facility which expires in May 2028. The Company also has access to an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $270 million outstanding borrowings under the commercial paper facility at June 30, 2024 resulting in $430 million remaining available under the revolving credit and commercial paper facilities. The Company also has access to $41 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At June 30, 2024, the Company had $17 million outstanding under short-term borrowing arrangements.

Current wording

At September 30, 2024, the Company had $394 million of borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million multi-currency credit facility which expires in May 2028. The Company also has access to an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $331 million outstanding borrowings under the commercial paper facility at September 30, 2024 resulting in $369 million remaining available under the revolving credit and commercial paper facilities. The Company also has access to $38 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At September 30, 2024, the Company had $13 million outstanding under short-term borrowing arrangements.

Previous wording

On July 29, 2024, the Board of Directors of the Company approved an additional plan to restructure the Company’s business to improve operational performance and drive shareholder value creation (the “2024 Plan”). In connection with the 2024 Plan, the Company anticipates a net reduction in the Company’s global workforce of approximately 2% to 4%. The proposed changes are subject to co-determination processes with employee representative groups in countries where required. The Company expects to incur between $40 million and $50 million in non-recurring restructuring charges under the 2024 Plan, primarily related to employee transition, severance payments and employee benefits, which are expected to be expensed and paid in cash in 2024 and 2025.

Current wording

On July 29, 2024, the Board of Directors of the Company approved an additional plan to restructure the Company’s business to improve operational performance and drive shareholder value creation (the “2024 Plan”). In connection with the 2024 Plan, the Company anticipates a net reduction in the Company’s global workforce of approximately 2% to 4%. The Company anticipates that the 2024 Plan will be substantially completed by the end of 2025 and result in $80 million to $100 million in annual cost savings. The proposed changes are subject to co-determination processes with employee representative groups in countries where required.

Previous wording

On February 14, 2023, the Board of Directors of the Company approved a plan to restructure the business through a new operating model with five global business units, optimize central functions and overall management infrastructure, and implement other efforts aimed at cost savings (the “2023 Plan”). The 2023 Plan estimated a reduction in the Company’s global workforce of approximately 8% to 10% and annual cost savings of approximately $200 million. The target for cost savings has been substantially met as of June 30, 2024, with the benefits mostly offset in the short term by additional investments in sales personnel, our new global ERP system, and other transformation initiatives.

Current wording

On February 14, 2023, the Board of Directors of the Company approved a plan to restructure the business through a new operating model with five global business units, optimize central functions and overall management infrastructure, and implement other efforts aimed at cost savings (the “2023 Plan”). The Company estimated a reduction in its global workforce of approximately 8% to 10% and annual cost savings of approximately $200 million pursuant to the 2023 Plan. The target for cost savings has been substantially met, with the benefits mostly offset in the short term by additional investments in sales personnel, the Company’s new global ERP system, and other transformation initiatives.

Previous wording

Beginning in the second quarter of 2022, the Company’s financial results have also been impacted by the costs associated with the internal investigation conducted and completed by the Audit and Finance Committee of the Company’s Board of Directors, and subsequently, associated litigation and the external investigation by the SEC which are ongoing. These costs totaled $61 million for the year ended December 31, 2022 and $19 million for the year ended December 31, 2023. In the six months ended June 30, 2024, the Company recorded $4 million of similar costs, including legal defense expenses pertaining to the matters described in Note 14, Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements, and expects that it will continue to incur such costs in the second half of 2024.

Current wording

Beginning in the second quarter of 2022, the Company’s financial results have also been impacted by the costs associated with the internal investigation conducted and completed by the Audit and Finance Committee of the Company’s Board of Directors, and subsequently, associated litigation and the external investigation by the SEC which are ongoing. These costs totaled $61 million for the year ended December 31, 2022 and $19 million for the year ended December 31, 2023. In the nine months ended September 30, 2024, the Company recorded $6 million of similar costs, including legal defense expenses pertaining to the matters described in Note 14, Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q, and expects that it will continue to incur such costs in the remainder of 2024.