Straumann Holding AG

SIX:STMN

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Straumann Group Q3 2024 Results Conference Call and Live Webcast. I am Maria, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Guillaume Daniellot, CEO. Please go ahead, sir.

[Guillaume Daniellot, executive]

Thank you, and good morning or afternoon to all of you, and thank you for attending this conference call on Straumann Group's third quarter results. Please take note of the disclaimer in our media release and on Slide 2. During this conference, we are going to refer to the presentation slides that were published on our website this morning. As usual, the presentation and discussion will include some forward-looking statements.

As shown on the agenda on Slide 3, I will go through the highlights first. Yang, our CFO, will then share the financial details. After this, I will provide you with an update on our strategic progress and outlook. We will both be happy to answer your questions at the end of the presentation. Let's start with our highlights and move directly to Slide 5.

In the third quarter, we were able to deliver strong results and made progress in our key strategic areas. We achieved strong organic revenue growth of 11.2% or CHF 586 million. While we continue to see different market dynamics in the regions, we have continued to gain market share across the globe. This brings us to a total of about CHF 1.9 billion for continuing operation in the first 9 months of the year, or 14.5% organic revenue growth.

One of the highlights of the third quarter was clearly the performance of the EMEA region. Its double-digit all-in revenue growth of 11.4% was driven by all business segments. The second key highlight was the global launch of Straumann SIRIOS, our competitive wireless intraoral scanner, which will help us to grow in the mid-2 entry segments. The third important highlight, which I will come back to later, is our continued investment in manufacturing capacity to support our growth across all the different regions.

Thanks to the progress we have achieved in the first 9 months, we confirm our outlook for the full year 2024. And with this, let's have a look at the regional development on Slide 6.

In the third quarter, the specific patient flow dynamic per region remained almost the same as previous quarters. As mentioned, the EMEA region performed strongly and across all business segments, with countries like Germany, Italy and Spain as main revenue growth contributors. In implantology, the challenger brands showed double-digit growth and new innovations were launched. Orthodontics supported the strong performance in the EMEA region, growing at a double-digit rate and winning new customers with some among the orthodontics specialist community.

Looking at North America, we see a less dynamic picture due to the effect of the unfavorable macroeconomic environment. The high interest rates have led to financial constraints for our stakeholders, such as patients, dentals practices and some of the large dental service organizations impacting the patient flow in bins. This has resulted in fewer patient consultations, limiting the growth of the number of implant cases.

While the patient flow was slow, the region is still delivering growth. According to our estimate, we have then continued to gain market share in implantology in North America in both the premium and the challenger segment during the third quarter. In parallel, the orthodontics business also faced a soft quarter.

On the other side, the Latin American regions once again delivered consistent double-digit revenue growth. The low challenger brand, Neodent, remain the main growth driver with markets like Brazil and Colombia contributing significantly. In addition, the orthodontics business performed strongly and entered markets like Argentina and Costa Rica.

Finally, Asia Pacific was the fastest-growing region despite a gradually normalizing baseline in China. You might remember that last year, the VDP demand significantly accelerate patient flow in the continent, which heavily influenced the region's performance. In China, both implantology premium and challenger segments showed strong growth. Asia Pacific outside of China showed also double-digit revenue growth driven by markets like Thailand, India and Malaysia. Intensified education efforts, including congresses and courses, significantly drove the expansion of the challenger brands in those countries.

And with this, I hand over to Yang to provide additional details on the financials.

[Yang Xu, executive]

Thank you, Guillaume, and hello, everyone. On Slide 8, you see that our 9 months revenue reached about CHF 1.9 billion, which corresponds to a double-digit organic growth of 14.5%. The FX effect in the third quarter is similar to the second quarter and amounts to CHF 85 million in the first 9 months, showing the strong currency headwind of about 5% on our top line.

The effect of mergers and acquisitions added CHF 21 million, which is due to the acquisitions of our distributors in the Baltics and Poland and AlliedStar in China. This resulted in an adjusted 9-month revenue base of CHF 1.6 billion. Despite a single-digit organic growth in North America, the group posted very strong double-digit growth globally, which underlines the strength of our strategy of regional expansion and a very diverse portfolio.

Slide 9 takes us to an overview of our performance by business segments for the third quarter. The implantology business was very successful across the regions, further boosted by many innovations we launched this year. Overall, the premium segment grew mid-single digits and the challenger brands double digits. We were able to gain market share in all regions, including North America, where implantology market was soft and patient flow slow.

Asia Pacific, strongly supported by VBP effects in China showed the strongest growth rate in both the premium and the challenger brands. Following the successful launch in North America and France, our new innovation, iEXCEL was prelaunched in Germany, Italy and Spain in the third quarter.

The orthodontics business showed strong momentum globally, except for NAM, where the environment was challenging. In the EMEA region, we closed the DrSmile transition in the third quarter. Our B2B auto brand, ClearCorrect, continues to pick up fast due to the team's strong execution and an intensified focus on specialists on top of general dentists. LATAM performed very well, and APAC is also making great progress, although at a much lower level.

The digital business grew well in general, while the growth rate was slower in the U.S. in the third quarter due to high digital sales in the previous quarter. We launched AlliedStar in China at the beginning of this year, and the demand for the intraoral scanner continues to show very strong momentum.

With this, I will hand over to Guillaume to provide an overview about our recent achievements and the strategy.

[Guillaume Daniellot, executive]

Thank you very much, Yang. Then let's move on to Slide 11 to talk about recent achievements and strategic updates. As you know, our slated addressable market is around CHF 19 billion, which leaves us with huge growth opportunities in all segments. Our strategic compass is designed to capture this market potential, and innovation, education and digitalization are the key pillars to success across all business areas. I'm pleased that we continue to make good progress in the third quarter along all those 3 dimensions.

On Slide 12, you can see our recent innovations that help us support clinicians to be successful with both clinical treatment outcomes and driving dental practice growth in those efficient way. In implantology, one of the most in innovation is iEXCEL, the new premium implant system for both bone- and tissue-level treatments. It offers the unique benefit of 4 distinct implant designs with the simplicity of 1 single implant system.

Another important recent launch was UN!Q in North America, which received very good feedback. UN!Q is on cloud-based on-demand prosthetic service that allows dental laboratories to outsource planning, design and manufacturing of patient-specific, customized abutments, bars and full control [indiscernible]. In the digital space, we pre-launched Straumann Falcon, our first compact and portable navigation system for surgeries that guides dentists in their surgical procedures in real time.

Finally, our latest launch, which I will come back to later, is our new and oral scan. This scanner will help improve the clinical journey and is an important part of our digital strategy. Last but not least, ClearCorrect. In orthodontics, we focus on seamlessly integrated digital workflow for the treatment of portal cases. The continuously further developed software ClearPilot, now allows for a more intuitive and user-friendly treatment planning experience and enables clinicians to treat more advanced cases.

All those innovations are inherent puzzle pieces in the patient journey and critical in supporting clinicians to be successful with both clinical treatment outcomes and driving growth of the dental practices.

Let's move to our education pillar on Slide 13. Education is crucial for both clinical excellence and market penetration. In the third quarter alone, we showcased our full range of solutions and brands to more than 3,500 existing or potential customers at large events across the globe. The largest event hosted by Straumann Group was the International Esthetic Days in Mallorca, Spain, which gathered about 1,400 dental professionals from across the EM region.

For these 3 days, world-class experts shared their latest clinical expertise and held multidisciplinary treatment discussions. For the first time in this setting, the focus of this congress was on the range of implantology brands and digital solutions as well as orthodontics. The event was a great opportunity to showcase our complete solutions and how they can be connected within our digital workflow and the Straumann access platform.

Apart from large multi-day events, we expanded also our education efforts to address specific clinical topics with smaller groups of clinicians, mainly involving hands-on sessions. In the Asia Pacific region, many courses took place in our new partner centers in Malaysia and India, which were well received by all the participants. Our ongoing investments in education and enhancement of clinicians skills enables us to continually increase the market penetration of implant therapy.

With this, let's move to Slide 14 and talk about digitalization. At the International Esthetic Days in Mallorca, we introduced Straumann SIRIOS, our new intraoral scanner designed to offer a competitive solution in the entry-level segment. By launching this innovative intraoral scanner, we aim to cover all price points in the IOS segment and continue increasing our installed base. Compact, lightweight and wireless, SIRIOS offers high scanning speed and accuracy, efficiently crossing digital data. Its seamless integration with a platform from an access improves the clinician workflow, and with this, the overall cation experience, driving a more streamlined and connected approach to patient care.

Let's move on to Slide 15. As mentioned earlier, intraoral scanners like SIRIOS are an important entry point for the clinician journey as they offer a seamless connection into our cloud-based common access platform. We are creating this platform with our mission in mind to become the most customer-centric oral care company. Therefore, it is designed to capture the entire clinician area from diagnostics, treatment planning to patient communication, and will connect our software solutions such as coDiagnostiX, Smilecloud and ClearPilot in the future.

Moving on to Slide 16. I would like to celebrate the first anniversary of EDGE!UP. Digital transformation is not just about technology, it is a lot of our people. This is why 1 year ago, we launched EDGE!UP initiatives, an internal education platform to help our employees embrace the opportunities of digitalization for workshops and courses.

We also encourage colleagues to use our so-called digital lab, a space to explore cutting-edge digital tools. All of this has been a great success in the first 12 months with more than 1,400 employees worldwide, improving their digital skills to workshop and courses, creating a solid foundation for all teams. We are convinced that this digital mindset is one of the key conditions for becoming digitally powered successful oral care company. This is why we are further laying out this program to our colleagues in sales and operations to help grow their digital proficiency, and I'm excited to see the future results.

On Slide 17, I would like to speak about the continued significant investment we make in our future growth. In September, we laid the foundation for our third Neodent factory in Curitiba, Brazil. This new greenfield facility will cover a total of 40,000 square meters and it's scheduled to be operational by the end of 2026. The third Curitiba site will further support the global expansion of our leading challenger brand, Neodent.

We also continued our global network expansion in Asia Pacific by investing in additional capacities. The ramp-up of our China campus in Shanghai is well on track. While we're still in the validation process phase, production of the first semifinished product has started.

With this, let's move to the full year outlook on Slide 19. While we expect the current geopolitical and macroeconomic uncertainties to continue and lead to different dynamics in our regions, we remain confident that we will continue to gain market share within our estimated globally addressable market of CHF 19 billion. Going forward, we will continue investing in capacity expansion, digital transformation and more go-to-market activities. With what we have achieved so far this year, we can confirm our outlook for 2024. We are confident to achieve an organic revenue growth in the low double-digit percentage range, and profitability in the 27% to 28% range at constant 2023 currency rates.

Now I would like to open the question-and-answer session. [Operator Instructions]. Chorus Call, can we have the first question, please?

[Operator]

Our first question comes from Richard Felton, GS.

[Richard Felton, analyst]

My first one is going to be on the U.S. So could you perhaps comment in a bit more detail about the current environment you're seeing for your business in the U.S.? Specifically, I'd be very interested to know what is driven the deceleration versus H1 and is there any shift in the trends that you've seen through the quarter? Then sort of following up on the U.S., I mean, looking ahead, what do you think needs to happen to see more robust trends for the dental market in that country? That's the first question.

The second question is on the rollout of iEXCEL in Europe. So I'd be interested to hear more the customer feedback has been. Then obviously, financial performance in that region was strong in Q3. How much benefit in financial performance you're already seeing from the iEXCEL launch? Or is that more to come in future quarters?

[Guillaume Daniellot, executive]

Thanks, Richard. Yes, U.S., lower patient flow as we have expressed. I think we have seen that deteriorating over the year, over all 2024. And I think it's high interest rate which is constraining, I think, both sides of the market. I would say one directly at the patient side with lower capability to spend. And of course, also on the treatment provider side and some of the large dental service organizations, as an example, which are, of course, tightening a little bit their OpEx and doing much less advertising that they have been doing in the first half, as an example, to drive an actively this patient float.

And it is what we have seen over the quarter. Did it worsen during the quarter? I would say, not specifically. It has been a rather soft development. And in order for this to change, as you asked, we think that, obviously, we need to see those kind of interest rate going down as it has started. We think that it needs a little bit more decrease in gross interest rates, and believe that it's going to continue by the end of the year. Everyone expecting that will continue then to drive down their interest rate. And then having a couple of quarters to have that impact on the consumer spending being, let's say, improved, we should see some then tailwind back for supporting the market.

Now this being said, we are still growing in the U.S. then that's why we believe we are gaining. Again, quite some significant market share based on what we have heard then from a different -- left and right. And we are going to continue investing in our capability to gain share, because when the market is going to be, of course, more supporting the overall demand, we would benefit from that share gain, especially from a new customer acquisition standpoint.

When it comes to iEXCEL, then the customer feedback on -- in Europe and EMEA is similar to the one that have started to use in the U.S., very, very positive. I just -- I can phrase one feedback I've heard from one of the group customers that met in the past week, which is like, "It's a Straumann home run," the way it has been expressed, and really pleased with the versatility and the ease of use of the system and especially the fact that it simplifies how to process the different sterilization and the handling of the overall system for the staff.

And for this, obviously, it's not easy to train staff in dental side, I think they are also valuing a lot this aspect of the system, not only clinically, but also a lot about how to manage it within the entire practice. What is the share of the iEXCEL in the performance of EMEA in the third quarter? Nonsignificant. We have just relaunched iEXCEL in Germany, Spain and Italy during the third quarter, it has been done only actually end of September, early October. And then for the time being, there is no impact of iEXCEL in the EMEA results.

[Operator]

The next question comes from David Adlington, JPMorgan.

[David Adlington, analyst]

Maybe just firstly on the guidance. Obviously, your decision not to raise the guidance despite the year-to-date signifies a significant slowdown potentially in Q4. Just wondered if you're actually seeing any slowdown there that you're concerned about or you're just your usual conservatism? And then specifically within the U.S., I don't want to get too granular, but maybe just in terms of your expectations about how the U.S. election might see some potential further hesitation through Q4? And then just as we think about FY '25, just wondering how you're thinking about the growth dynamics maybe by segment or region as you approach 2025?

[Guillaume Daniellot, executive]

Yes, David. I think on guidance, we are -- the only thing that we say is that we are confident for Q4. I think we are seeing trends that are still in the regions where the patient flow is still dynamic. We don't expect really any significant change in the dynamic in the patient flow from most of the regions. And that's why we are not anticipating significant deterioration in U.S., we are not anticipating significant slowdown in the rest of our regional performance. Then -- that's why we look confidently at the end of the year, and we'll see exactly where it land for the full year. But for us, then that was also then the fact that we were wanting to confirm the guidance with a lot of confidence but does not mean that we see a very significant change in kind of Q4 dynamic.

When it comes to U.S. election, it's always difficult to analytically define if there is any impact on the demand with regard to this -- then third quarter. Yes, of course, election is having an impact and the fact that people are not focused on the business, but a lot talking about this political, let's say, import event. But I do believe that the interest rates are having a much more important impact than any of the political election implication. And that's why I would phrase it not very significant, even though it will be better when the results will be out and people can come back to really focusing on the business.

And for 2025, of course, it's too early for us to give any guidance of 2025, we'll do that after first in what's going to be on Q4 run rate. But again, I think we are looking confident with all the new products that we're having to release on both digital side, but also the full rollout of our iEXCEL in all geographies. And yes, we see SIRIOS also being able to have a full year run. In addition to our SIRIOS development, and we are confident for 2025, but it's too early to give any really clear perspective about what it's going to be.

[Operator]

The next question comes from Hassan Al-Wakeel from Barclays.

[Hassan Al-Wakeel, analyst]

Firstly, can you please talk about the ClearCorrect performance? You highlight a softer orthodontics business in the U.S. Is this incrementally worse versus Q2? And how are you seeing this fair globally? You also talk about customer wins on the specialist side, Guillaume, in orthodontics. Can you elaborate yet, please, and talk to some of the feedback the feedback that you are receiving from specialists and how you think that this will be a feature for 2025? And then secondly, could you talk about the China market and how you think about better affordability, sustaining double-digit growth into next year despite all the macro concerns we continue to hear about on a daily basis on the consumer front?

[Guillaume Daniellot, executive]

Yes. Thanks, Hassan. Coming to ClearCorrect, was it incrementally worse in America? I would not say so. I would say it was more or less worse in the same line. We were -- let's say, that we were growing that -- on the soft side in North America in clear aligners. It was, of course, a little bit softer than this, but we don't see a significant difference then. We have also, once again, on a rather low base and that's why we keep acquiring customers. We have had some of our customers doing a little bit less volume. But all in all, I think we have not seen very significant difference versus the second quarter.

When it comes to global, we are still growing double digit on a Clear price. I think we are still very pleased with our progress on this one, and we see that our go-to-market investments are really paying off, and then we will continue as such. And yes, we are seeing some specialists using ClearCorrect more and starting to gain some customers on this segment. We see that also by the increased complexity of the treatment we are treating, by the increased number of clear aligners that we are manufacturing per case, which is really demonstrating that we are going into those more advanced cases and creating more confidence at the specialists side.

Now we are very often, with those specialists, just starting our journey. And having still so far, a limited number of cases with them, but I think that's ongoing is to raise confidence to increase our penetration step by step. And I think we are on the right direction on this 1. Exactly as we expressed a couple of quarters ago, we feel that ClearCorrect is ready now for the specialist segment. And while it does not cover everything from an indication standpoint, it covers enough in order that we can have those relationship development with this important part of the clear aligner market.

When it comes to China, well, we have not done any guidance also for 2025 when it comes to the Chinese market. But I was, again, in China last week, we still see a significant demand coming to the practices. We see that the duration reservoir that are still seeking for treatment, it's important. And what is very important for us to be able to continue then generating very significant growth is not only to be able to develop and invest in our go-to-market still on premium, but also making sure that we are serving the old price segments with our ecoline.

And we are actually here developing further projects to be able to drive this offering that will cover all the different price points and especially all the different customer groups in all the different geographies of China. There has been a lot of development in the Tier 1, Tier 2 cities. We see a lot of development now also on Tier 3 cities, but where expectations are sometimes a bit different. And this is why we are really, really here focusing on customer needs, as always, and being able to deliver then through Straumann countries through our different partners exactly the value proposition, which is allowing us to capture to all the different patient segments.

[Hassan Al-Wakeel, analyst]

Very helpful, Guillaume. If I could just follow up, just on Q4, I mean, is there any help other than tough comps explaining the implied deceleration in guidance? I know you're talking about guidance confidently. And is Q4 a better proxy for next year given the China dynamics that you just talked about and the comps that get tougher? Or is there anything to your mind that should drive an acceleration in '25 on Q4?

[Guillaume Daniellot, executive]

For the time being, it's difficult for me to answer your question because I don't see Q4 yet. And then would tell you if Q4 is a good proxy for 2025, as soon as we believe that Q4 will be reflecting what we see from a trend standpoint. What we can say again is if there is nothing that would come on top of what we are facing at the moment when it comes to macroeconomic environment, then we believe that the trend should be continuing. We see robust trend in EMEA, robust trend in Asia Pacific.

And again, it's not only China, which is also very important to express. We have all the different Asia Pacific countries and also very well where we are investing in. Latin America that should be also drawing significant growth. And we all expect then North America to be then better in 2025, interest rate will go down. Then that's what I would be able to express when we see 2025. But we are still expecting Q4 to share our view on how 2025 would be with regard to the latest Q4 trend.

[Operator]

The next question comes from Maja Pataki, Kepler Cheuvreux.

[Maja Pataki, analyst]

Also from my side, just quickly one question on the North American market and then something on the outlook for 2025. Clearly, you said that you have detected a deceleration in North American growth throughout Q3, and Q3 overall was rather stable. But we have seen a slow and steady deceleration throughout the year. And granted you do not have a crystal ball, but is there -- is your conviction higher that we're going to see an acceleration of growth going into 2025? Or do you believe we're standing at a 50-50 with the potential desert deceleration continuing into 2025? That's my first question.

And then the second question looking at the potential mix on which regions are going to contribute to growth in 2025, do you believe that even if the U.S. will see another deceleration in growth, you'd be in a position to improve your core operating margins on a constant currency level?

[Guillaume Daniellot, executive]

Yes, Maja, I think on the U.S. side, I would say that we have not seen decelerating this over the year. Because if I remember well on Q1, it was around 3%. Then we have, on Q2, that was sequentially improved. And then we have Q3, which is once again a little bit lower. What we can say is that they are here when we are coming to small numbers, we see that patient flow, which is not very dynamic, but we see also the digital equipment, which is playing a role here.

And then in the second quarter, the digital equipment added then a couple of points to growth, which is not the third quarter, because the third quarter is typically not an equipment sales quarter. Then that's also why we are saying that we don't see a significant deterioration or a deterioration of patient flow, but we see that still very, very soft. And we don't expect, again, North America coming into 2025 and the Q4 to deteriorate versus where it is today.

But now as expressed a little bit earlier, they will be, as soon as interest rates will go down and having a kind of a 6-month period in order that the impact of those increase of interest rate could be perceived at the patient level and a more discretionary income to spend, and also actually, which is one of the important effects being accepted from a credit rating standpoint, which is of course, preventing some of the patients to then go through the procedure, because they are currently then having interest rate high versus what they are earning today, then it will, of course, then support better the overall market. And I would say that means that this is where we think it should happen in the 2025 in the course of the year.

Now when it comes to then our product mix, I think we are anticipating this product mix. It's already starting from 2023, the second half, that we have seen that China was, of course, a much higher than volume growth and much representing much more growth share versus the rest of the regions, then we have North America that have been less dynamic. And obviously, we are anticipating this for having all the cost efficiency program internally and being able to continue pushing our operational leverage capability to keep being able to come up with the operational improvement.

This, in parallel, we keep, as expressed, investing significantly in growth moving forward. Because we do believe that when it comes to innovation, education and digitalization on the 3 areas that are creating the difference and allowing us to have very significant performance versus peers. And in order that we can maintain those market share gain level, this is very important for us to keep then catering to the demand as we had from a factory standpoint, but also driving new technology on the digital side and still helping to grow the pie in all the different geographies with education.

[Operator]

The next question comes from Graham Doyle, UBS.

[Graham Doyle, analyst]

Just one on the U.S. and then maybe one on China. Just in the U.S., kind of note in Q1 and Q2, you talked about stable patient flows. So is it reasonable to assume that patients have gotten worse in the Q3? And did you see that sort of get worse through the quarter or not? And maybe just to your kind of experience, Guillaume, how would you contextualize the U.S. now versus so any point in the last kind of 5 to 10 years in terms of your optimism on return to growth and consumer sentiment? Maybe a quick one on margins. I think you've helpfully given us the FX impact in previous quarters in terms of the constant currency margin, could you maybe just give us a refresh on that as well, please?

[Guillaume Daniellot, executive]

Yes. When it comes to U.S. and Q3, what we have seen also into 2024, is as the patient flow has been slowing down, we have seen also -- and this is quite of a difference versus the past. The dental service organization has been the one pushing significantly in opening in the market with investing into that market in both advertising and pushing also their clinicians, doing a lot of implant education. And what we have seen also is it's less advertising and then less patient flow generated from a proof strategy those dental service organizations.

We have seen also less of this, which means that this is impacting some of the market demand as well than, especially when it comes to that larger reconstruction that would be full launch or even kind of a large aesthetic cases. How I feel about the U.S. market moving forward? Honestly, I'm positive. I think it's really -- and we have seen that from an interest rate standpoint. And as soon as interest rate will go down, which has, again, a major impact when you look how much the U.S. households are into credit and how much they are financing a lot of their purchase with credit, then the interest rate increase has a very significant impact on discretionary income.

And as soon as this weight will not be there anymore or at least it would have been reduced significantly, and that they could enter into positive credit rating, I think we will see the this positive demand trend going up significantly. And that's where we, I think, all hope that the Fed will continue decreasing the interest rates and the faster, the better in order that consumer confidence and especially consumer consumption will go back to a much higher level. But I really do think that those interest rates, my personal thinking that I see and the U.S. positively moving forward when we'll have those effects. Yang, for -- do you want to go ahead?

[Yang Xu, executive]

Okay. So Graham, if I come back to your second question was related to the margins. Yes, you're right, we did guide our constant currency margin between 27% to 28%. Your question might be around the FX that we guided early in the year. So what we said will be anywhere between 100 to 200 basis points when we got into the year. And if you were to ask us right now, I think it's around the mid-range of what we guided. Of course, I mean, we don't have a crystal ball, we will not know where venting quarter 4, but this is what we see so ar.

[Graham Doyle, analyst]

Great. That's super. Maybe just a quick follow-up. It sounds one of the things that's clear to the call is your kind of conviction on how important interest rates are to demand. I'm just sort of wondering, right now, obviously, there is some pressure in the U.S., but employment has been pretty high. And obviously, a consequence or a reason for [ rise of ] interest rates is unemployment. Would you -- which of those 2 drivers do you really think would drive demand? Is it employment? Is it lower interest rates even if you have higher unemployment? Because it feels like, based on what you're saying, you're [indiscernible] what's going to happen with the interest rates, which just feels like something we've had to worry about in the past.

[Guillaume Daniellot, executive]

No, because for us, interest -- employment did not move so dramatically. When you look at -- employment is a really significant challenge. As soon as unemployment rate is increasing, then with very significant impact. And we have seen challenges when it comes to employment, but we have seen step-by-step then this kind of demand slowing down because of those interest rates going up on a regular basis.

And that's where, of course, we want the employment rate or we need the employment rate to stay stable or even to improve further if needed. But at the moment, what is -- with slowing down the market is much more the capability for people to finance treatments, and that's one of the reasons why they are just in standby and expecting price to go down, thanks to having, of course, less interest payments and also having the capability to go to credit in an easier way when they review our current burden.

[Operator]

The next question comes from Daniel Jelovcan of Zürcher.

[Daniel Jelovcan, analyst]

Also from my side. One topic not covered so far is Japan. You haven't really elaborated on Japan. I mean did the currency -- this carry trades shock and so on, did that have an impact or maybe with certain in Q4? That's the first question to Japan. And the second one, AlliedStar China. You mentioned in the press release that the uptake was strong. Can you elaborate a bit more on AlliedStar? I mean does that go to the big practice or broad-based acceptance, and so on that would be nice?

[Guillaume Daniellot, executive]

When it comes to Japan, I think Japan has been positive for us. Good growth in line with what we were planning and with our expectations. And no, we have not seen any significant disruption in our positive growth trend in Japan. On the, let's say, the different feedback also from clinicians or with regard to patients, obviously, nothing specific, I would say, to report except that trend has been consistent with what we have seen before, on the positive.

When it comes to AlliedStar in China, yes, China is -- as we are all hearing from all the different industries, it's really, really having a strong focus on digital technology. There is a lot of investment done in China about digital capability development. We see a lot, of course, AI companies developing but also a lot when it comes to dental, about digital capabilities when it comes to equipment and software. A lot of future leader in this space will be coming from China with all the development that we are seeing. And especially the expertise that they have been able to gather in that space.

That's why we are really pleased with the AlliedStar partnership and acquisition that we have done to help us then opening up the market on digital technology. And especially in China where they are all having CBCT scanners in a dental practice, but the penetration of intraoral scanner yet quite low. Then we want to position ourselves in the also significant opportunity, but with a scanner at a much lower cost base because this is really what the Chinese customers are expecting.

At the moment, we are seeing significant positive trends still in China when it comes to digital equipment acquisition. And this is why then we have seen at, I would say, midyear, early this year, and the trend has been very dynamic. We are above what we were expecting to sell in the China market, and we will continue doing this. Even though we will need to continue also innovating, because the innovation rate in China is very dynamic. There are also other competitors in AlliedStar in this market, which is good also for keeping us on our toes when it comes to being competitive in the dental digitalization disruption trend that we are seeing all around us and also in all the different regions.

[Operator]

The next question comes from Oliver Metzger, ODDO.

[Oliver Metzger, analyst]

First one is also in the U.S. So can you describe the dynamics more from the [indiscernible]. So some quarters ago, it was only about the more complex cases. but this actually have already annualized to a certain extent. So if you think about the different systems, do you still see higher pressure coming from the complex cases? Or do you see more an overall demand? Second question is orthodontics in Europe, how important is the increase of share of sales at Impress to the positive development?

[Guillaume Daniellot, executive]

Thanks, Oliver, for the question. Then in the U.S., yes, I think it has started with a high pressure of complex cases on the demand side. By the nature of the procedure, this is really the high ticket items, then they are all in between 25,000 to 35,000 per case, which has been the first one to be impacted. At Express during our second quarter that we have seen -- in first quarter as well, we have seen this expanding in, let's say, smaller indications like a couple of implants or, also in some area, single implants. But would say at the moment, we don't see the worsening trend on those single cases, but we have seen also, as expressed also earlier, than lower advertising investments from some of those than the large dental service organization.

And all in all, that's why we have then witnessed a much slower market than previous year. And we believe it will continue like this. Complex cases will still be significantly impacted, and I think we still see much less pressure on the single case or the simple cases because of the level being obviously much lower. When it comes to ortho EMEA, there is no impact on Impress because -- and we have not yet then started to supply at a large scale basis as we were closing then the deal. We are going to do that in the quarter to come, and we don't have this particular effect for the third quarter on our ClearCorrect ortho business.

[Operator]

The next question comes from Dylan van Haaften, Stifel.

[Dylan van Haaften, analyst]

So just a clarification from my side. I noticed that you changed your clear aligner market share estimate from around 5% to around 3%. Is that -- could you confirm that's 100% DrSmile DTC related? And could you also maybe just recap the numbers that are underpinning this? And could you also confirm that you gained share on a like-for-like basis ex the DrSmile DTC business? And maybe -- and I think one of my colleagues -- peers asked this as well, maybe just give us a better sense of what the underlying geographic trends are.

[Guillaume Daniellot, executive]

Yes, Dylan, and I can confirm, we moved down our 5% market share on clear aligner down to 3% just because of the DrSmile divestiture. When it goes to ortho, when you look at our ortho clear aligner growth rate right now with double digit, we believe we are gaining share when we look at the overall clear aligner market segment overall trend. And where we believe we are winning the most share are in EMEA and Latin America, we're significant double-digit growth. We're having also positive growth in Asia Pacific, but at a much lower scale, meaning that while there are some market share gains, it's not very significant. And I think when it comes to North America, we -- our estimation is that we have been performing a bit above market, but I think also not significantly to claim share gain.

[Operator]

The next question comes from [indiscernible], BNB Paribas.

[Unknown Analyst]

I have 3 questions, please. First, on China. Guillaume, maybe can you give us an indication of what the growth rate has been in October in the [ three ? And any first discussion or around the potential round 2 of EDP in 2026? Second, on the U.S., we're hearing it across other industries that insurance will likely become less generous next year, would you expect this to change or impact demand dynamic, possible down trading in the U.S. into next year? And lastly on EMEA, you mentioned intensifying customer acquisition effort, sorry if I missed your earlier comment, but could you maybe elaborate a bit on this? And is it a new higher cost of doing business? Or is it temporary?

[Guillaume Daniellot, executive]

Yes. When it comes on China, while we are not commenting month-to-month growth rate and October is not finished yet, I would say, but what we can say is that we don't see significant change in any of the trends we have seen so far. Then that's one of the reasons we have been expressing that we are confident for our fourth quarter. When it comes to [ VVP ] 2026, then yet, we have to learn more about what are going to be some of the rules if they are changing any we are, of course, anticipating some of them, one being that the requirement of having local manufacturing should be 1 of the most important points that will be implanted in 2026.

And that's why we are really pleased to have done those investments earlier on and to have speed up really our development there and to be fully ready for 2026 [ VVP ] with local manufacturing. We are, in Q4, going to manufacture a product that we will commercialize. Class 1 product, which is ortho prosthetics. And in the second half of 2025, we'll be able already to have all registration for Class III product, meaning all the implants as well, then allowing us to have everything manufactured with regard to the VBB requirement, potential requirement in 2026.

And that's a lot of the work done to make sure that the BBD will not then lead to a very significant disruption from what we are expecting. When it comes to U.S. insurers, yes, we heard that as well. Now that implant has almost known to very limited reimbursement in North America. It's almost all than the copayment or fully paid by the patients, meaning that we don't see these enters change in reimbursement policy affecting significantly the demand in North America.

And in EMEA, I think -- could you help me still, again, you were talking about higher cost to do business for what, you were talking about here?

[Unknown Analyst]

Yes, in the press release you mentioned intensified customer acquisition efforts. Just wanted to get your view on whether it is temporary or it's just a higher cost of doing business and growing in the region?

[Guillaume Daniellot, executive]

It's not higher cost of doing business, it's investing in further growth. We are looking at leveraging then all the innovation we are doing. In our business, innovation is the name of the game. And we are investing significantly in innovation. We have seen on demand side with iEXCEL. On the digitalization side, with SIRIOS and our access platform. And still pushing, of course, all the different price points with SIRIOS, which is innovative also with free shape. And being also able to deliver a better value proposition on ClearCorrect, with extended indication.

Then the second aspect to be able to bring those innovations on the market and gain share is the sales force pressure combined with education, which is allowing us really to gain those significant market here. Then on a regular basis, to make sure that we can keep growing. We are doing those go-to-market investments now in EMEA, for example, for the future iEXCEL launch, and this is where we expect then to keep our high growth rates to pursue in the future.

[Operator]

The next question comes from Robert Davies, Morgan Stanley.

[Robert Davies, analyst]

My first one was just on your earlier comments around rates coming down. Obviously, if you look on a year-on-year basis in 3Q rates, already somewhat lower than they were 12 months ago. Yet even with easier comps, growth has slowed. So I just wondered, is that a timing issue in your view, you just kind of need to wait longer before customers sort of confidence improves? Or is there anything above and beyond that?

And then I guess sort of tied into that is just the risk that the U.S. growth goes negative in the fourth quarter. I mean it's been slowing out for a number of quarters and growth gets more difficult in terms of a comparison year-on-year in 4Q. You mentioned there was, I think, a 2% impact from digital in the previous quarter. Can you give any color in terms of what your expectations are for that contribution in 4Q? Is there any seasonality? Or is there anything to read into that?

[Guillaume Daniellot, executive]

Yes. When it comes to the rate, I think the Fed has decreased the rate by 50 basis points, and 50 basis points is not enough to make a difference with regard to how much it increased in the past. And we expect further decrease and, of course, you have a kind of a time lag of 6 months in order that we see the impact for the households with having their interest rate burden being reduced. And that's why we still believe that we need some further reduction by the Fed and this 6 months time line to be able to see an impact on the spending and the appetite to go further with high-ticket items, such as full large or large oral care treatment.

When it comes to U.S., no, we are positive about Q4. Our current perspective is not having a decline in the business with regard to all the different opportunities we are also having. We are still having iEXCEL allowing us then to grow our share premium side. We are still having our Neodent challenger brand, which is growing at a really positive rate. And our digital capabilities to support our consumer, our clinicians being able to drive the further digitalization of their practice. And while the market is, of course, not as supportive as it has been 12 months ago for the time being, we believe that there is still the capability to generate growth, although not as high as it was previously in North America.

[Operator]

The next question comes from Giang Nguyen from Citi.

[Giang Nguyen, analyst]

My question is on EMEA. Very good, impressive growth rate. I was wondering if you could break it down into volume versus pricing? And how sustainable do you think this growth rate is going forward? And then sort of the same question on LATAM, if you could break down the volume versus price a bit here, please?

[Guillaume Daniellot, executive]

Yes, Giang, it's mainly volume. We have -- we can have potentially -- we have always expressed that you can count something like 1% to 1.5% -- in between 1% to 2% price point, meaning that all the rest is volume gain and volume growth, both for EMEA and Latin America. And when it comes to sustainability of the growth, we believe that we have strong opportunity in both regions, thanks to the innovation that we have to deliver. And as expressed, the go-to-market investments that we have done, yes, we are positive about our capability to still grow EMEA and LATAM at higher than what we are considering from an overall market standpoint.

[Operator]

The next question from Falko Friedrichs, Deutsche Bank.

[Falko Friedrichs, analyst]

I have a question on China, please. How many weeks or months of good visibility do you really have for the demand in China? The reason I'm asking is that I think the earnings season, again, we've seen that demand in China can deteriorate very rapidly, right, within a quarter, even within 1 or 2 months. So I'm just asking to make sure that we don't run into a similar scenario with you over the next 2 to 3 months.

[Guillaume Daniellot, executive]

Yes. First, you may know that we have been going through distributor when it goes to our China distribution or China go-to-market. And we are actually paying very much attention to this. So how much stock is kept distribute level, meaning that we are always sitting with customers and spending time a lot with customers, and especially those that are really here at then the part of the growth we have been generating. To give a kind of perspective, the China market is around 25% public hospital. We are going to have 30%, 35% of DSO and then the rest will be smaller practices.

Then we are having a very good understanding of the public hospital and the DSOs because we have regular direct contact with them. And this is where we see that, currently, patient flow and activities are still heavy. Then we are not expecting any very significant downside, let's say, within the next 1 to 2 months. As I agree, has been seen in other industries. At the moment, we have, I would say, this kind of direct contact with those key customers that are generating quite a lot of volume, and we don't see any significant trend disruption in the possible short-term future.

[Operator]

The next question comes from Julien Ouaddour, Bank of America.

[Julien Ouaddour, analyst]

So if I ask you to repeat yourself, just like just let me know. But my understanding is that on North America, you're basically, let's say, are saying that demand might improve after the rate cuts and probably with a 6-month lag. Just checking at the next year consensus is roughly 10%, do you need the market to return to mid-single-digit growth in 2025 to get to this number? Despite -- I mean, I know you mentioned some, let's say, product launches, but -- I mean, at [ EBIT ] level?

And the next question, just on implants. So iEXCEL, I feel that your -- I mean, you feel a bit more positive about the feedback you got in the U.S. and now that you are having in Europe. Do you still think that you can take roughly 10% market share like in the coming years? Or can you even probably take like further shares from that?

[Guillaume Daniellot, executive]

Yes. Thanks, Julien. Again, for in 2025, we'll see when we will be there after our full year results, because need to understand a little bit speed of cut rates that are going to be done by the Fed. And obviously, to be able to have a strong dynamic or getting back to high single digit in North America, we need to have a more favorable macro environment. Obviously, how fast it's going to be? I think this is still something that we don't know. And we are going to have some additional signal after the next Fed meeting, which is happening before end of the year. Then that will give a little bit more than light into what will be possible to expect from an overall market growth and to which we add, obviously, our market share gain.

When it comes to iEXCEL, yes, I think we -- sky is the limit, as always. We know that thanks to superior product features and especially expected benefit from customers, we can really move the needle, and this is what we're seeing at the moment. Now obviously, the -- our capability to push iEXCEL is going to be then very significant when all the different markets will have been launching the product or would have launched the product, meaning that it's going to happen in the next, I would say, 3 to 4 months. Because Q1, we will have in all the different European markets that would have launched the product.

And Asia Pacific, especially mature markets such as Japan and Australia, will come later. But when we will be in full swing, I think being able to achieve the 10% market share gain that correspond to a little bit of more than 200 incremental -- CHF 200 million incremental would be already a really big push for us. But if there is space to take more, yes, we will be able to drive that, of course. Let's say that in a year from now, we'll see where we will be, and we'll see what would be the total opportunity for iEXCEL moving forward.

[Operator]

Today's last question comes from Shubhangi Gupta from HSBC.

[Shubhangi Gupta, analyst]

So my last question is on China. Do you see any impact from the China program, especially on the digital solution business side? And second, just following up on North America. So with interest rate cuts, you think growth will come back. Is the low consumer confidence just down to a higher interest rate? Or is it also like volatility before U.S. elections and maybe customers switching to other aesthetic processors like GLP cuts?

[Guillaume Daniellot, executive]

Yes. I think it's -- when it comes to China, we have not seen any impact. I think the digital trends is very solid when it comes to, at least, intraoral scanner equipment acquisition in China. We have not seen any specific acceleration based on the latest Chinese then the subsidiaries or proof for then -- for those of technology. But it's still at a very high rate of progression from this IOS penetration or market penetration.

When it comes to U.S., yes, we have heard if the GLP-1 could be a reason for having lower consumption of demand in a sticky product when it comes to oral care, and orthodontics included. At least when it comes to implants, we don't think that it has an impact for us significantly. While I know that the GLP-1 has been used also by a part of the elderly or more advanced in age patient group, I think the major treatment have been purchased by more young patients.

Then it might have had an impact on the clear aligner where, anyway, our critical mass is not there. And I would say that we can expect that it has an impact on our ClearCorrect sales, but don't believe that it has an impact on implants yet, or at least very insignificant. We believe really those interest rate has been playing a role and also seeing less advertising for some of the care providers have decreased some of the patient flow dynamic.

Well, with this, then I'd like to thank you for being here with us and for your attention. We are looking forward to speaking to you again soon, and we wish you a very nice day and a warm goodbye from Basel.