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Good morning everyone, and thank you for joining this conference call on Straumann Group's third quarter results.
Please take notes of the disclaimer in our press release and on Slide 2. During this conference call, we are going to refer to the presentation slides, which were published on our website this morning. As always, the presentation and discussion will include some forward-looking statements.
Today's conference will follow the usual format. As the agenda on Slide 3 shows, I will provide an overview on where we stand, and then our CFO, Peter Hackel, will share details about the business performance across our regions. After that, I'll give you an update on key strategic initiatives and our outlook for the future. Of course, we'll both be available to answer your questions at the end of the presentation.
Let's start with our highlights. On Slide 5, you can see that we reached CHF 551 million in revenue in the third quarter of 2022, making a total of CHF 1.7 billion in the first 9 months of the year. This leads to a strong organic revenue growth of 12% in the third quarter, leveling off at solid growth rate versus a very strong competition. In addition, the negative currency effects seen in the first half continued in this third quarter.
One of the highlights was the Roxolid SLActive study which demonstrates strong preclinical evidence of the quality of our premium implants offering versus our key competition. Secondly, the planned investment in SmileCloud was another highlight. This partnership is an important part of our significant effort to accelerate the digital transformation of our customer solutions and to improve the user experience for clinicians.
We continued to work on our strategic priority to develop our consumer presence. We are proud that Dr Smile now becomes our single direct-to-consumer marketing aligner brand in Europe following the successful complexion of the Plusdental acquisition. Together with our customers, partners, and our team, we were able to deliver a very good quarter despite the ongoing macroeconomic uncertainty. Based on the continued patient demand for solutions, we raised our expectations for full-year organic revenue growth to the mid-teens percentage range, and expect profitability at around 26%, including significant growth investments.
On Slide 6, you can see that our solid growth continued in all regions during the third quarter of 2022. The patient demand remains good, enabling the group to continue its growth from the first half through the third quarter with the largest contributions to revenue growth coming from the EMEA region with 15% organic growth. As a highlight, Latin America remain the fastest-growing region with organic growth of 21%. Given the macroeconomic developments in North America, we considered the 9% organic growth to be a good performance, and the same applies to Asia Pacific. In China, we see treatment delays on the one side due to the ongoing regional pandemic lockdowns and on the other hand in the public sector due to the tender process of the so-called VBP that the Chinese government is planning to implement as part of the effort to make healthcare more affordable.
Let's move to Slide 7. In the half year presentation I elaborated on the economic challenges and geopolitical development we are all facing, how we evolved as a company and why we feel confident that we are much stronger-positioned and diversified today than during the last recession period, which will help us navigate through these more challenging times. We are also strongly believing in our high-performance player-learner culture as our people are truly the key to our success. Agility and entrepreneurship guide us to steer our activities in the regions based on the local situations.
Finally, and more importantly, we are operating in an CHF 18 billion addressable market with a market share of only 11%. Thanks to our innovation pipeline for the years to come, this represents a significant growth opportunity to achieve our ambition of reaching CHF 5 billion by 2030.
With this, I will hand over to Peter to provide additional details on the business and regional performance.
Thank you, Guillaume, and good morning everyone. As usual, I would like to begin with our revenue development at the group level, and we'll then provide an update on our 4 regions as well as the performance of our businesses.
On Slide 9, you can see how well our 9 months revenue developed with an organic growth rate of 18%. The negative currency effect in the first half continued in the third quarter due to unfavorable exchange rate development and almost doubled since the half year results. The impact amounted to CHF 32 millions on our 9 months revenue. The effect of merger and acquisitions added CHF 16 million, bringing the adjusted 9 month revenue base for '21 to CHF 1.46 billion. The M&A effect in the third quarter was mainly due to Nihon and Plusdental, which we consolidated as of January and July '22 respectively.
In the center of the chart, you can see that all of our regions reported double-digit growth for the 9 month period, leading to 18% organic growth in group revenue. This was mainly driven by EMEA and North America, which contributed a combined total of more than 70% of overall growth as you can see on the right of the main chart.
Slide 10 shows EMEA and North American regional growth. EMEA remains the group's largest revenue contributor and reported CHF 219 million in the third quarter of '22 with strong organic revenue growth of 15% compared to '21. Premium and challenger implant sales remain high, and the Digital business was successful, mainly driven by intraoral scanners. This was supported by the fast-growing Dental Service Organization business in the region. The Dr Smile brand grew strongly while the ClearCorrect orthodontics business contributed to regional growth. The largest revenue contributor was Germany, followed by strong organic growth in Turkey and Eastern Europe, which includes Hungary, Czech Republic, and Romania.
In the third quarter of '22, the North America region and showed a solid organic revenue growth of 9% to reach CHF 170 million. This growth was supported by the strong implant business led by the Neodent brand. In addition to the growth of the Straumann and Neodent brand, CareStack, a cloud-based practice management software which will offer clinicians a seamless end-to-end treatment management experience has been launched. Macroeconomic developments in the region continued to influence patient demand for aligners. Also, the effect had a lower impact than in the second quarter.
On Slide 11, you can see that Asia Pacific continues to grow while Latin America is leading organic growth across all regions. In the third quarter of '22, the Asia Pacific region achieved revenue of CHF 114 million, which is a 9% organic sales growth compared to the same period in '21. As Guillaume mentioned, this lower growth in China due to ongoing governmental price regulations discussions around the VBP and the ongoing pandemic lockdowns had an impact on the result.
However, the strong performance of the rest of the region led by Australia, Taiwan, India and Japan largely offset the sales impact of the continued challenging situation in China. Digital Solutions and implantology, premium as well as challenger are successfully contributing to regional growth. With the regulatory approval of ClearCorrect in China and the opening of the new subsidiary, we continue to invest in the Asia Pacific region. Latin America was an absolute highlight in a third quarter. The region grew to CHF 48 million, up by 21% on the base quarter in '21.
Regional growth during the third quarter of '22 was therefore very strong. Patient flow is good, and we continue to gain market share in this region. Brazil remains the biggest revenue contributor in Latin America with robust demand, notably for its leading implantology brand Neodent. In addition to Brazil, Mexico, Columbia and Peru showed good growth. As a highlight, the new innovative ceramic implant, Neodent ZI was launched in Brazil and the Vitro Vivo intraoral scanner remains the largest growth contributor to Digital Solutions. In addition, the orthodontics businesses is contributing well to the regional performance, expanding to Mexico, Columbia and Chile.
Turning to slide 12, we can look at our performance by business. Implant sales once again contributed the largest share of our growth. The group's premium BLX and Immediacy solutions continued to be an important growth driver as well as our BLT implant sales, which grew double digit value.
Value implant growth outpaced the premium business again. Medentika was the strongest growing challenger brand followed by Neodent, which was the largest contributor in absolute sales figures in this segment. Our digital and restorative business saw growth in the high teens with the largest share coming from EMEA and North America while Latin America impressed with VirtuoVivo sales, which almost doubled. The trend of digitalization in dentistry is continuing, and the majority of the revenue contribution was especially supported by our intraoral scanner segment.
On a group level, our biomaterials business performed in parallel with the premium implant business. We saw solid growth in EMEA and good momentum in Asia Pacific due to the introduction of XenoGraft. Orthodontics was the fastest-growing franchise, strongly supported by our doctor-led director-to-consumer marketing expansion in Europe, which is progressing very well. Also our B2B clear aligner business in Asia Pacific contributed strong growth. The macroeconomic situation in the U.S. influenced consumer confidence and impacted the performance of the ClearCorrect home market. However, the slowdown in the U.S. was offset by Europe and the progress of our consumer activities.
And with this I will hand back to Guillaume.
Thank you very much, Peter. Let's move on to Slide 14 and take a look at our recent achievements and the group strategic update. At the EAO Congress in September we were proud to present the Roxolid SLActive preclinical study outcome that highlights our strong surface performance versus our key competitor. In this controlled preclinical study, the effect of implant surface and implant geometry on crestal bone formation and osseointegration were investigated by Professor Shakeel Shahdad, et al. Crestal bone formation is a crucial aspect for the aesthetic and biological success of dental implant cases and therefore the scientific community continued discussions about the best possible solutions.
For the first time, we have a study showing that osseointegration was significantly improved with our Roxolid material and the selective surface at 8 weeks compared to a major implant competitor. This is particularly important that the crestal bone formation is one of the key aspects to reduce the risk of periimplantitis which is one of the major risks associated with dental implants.
Moving on to slide 15, we have been very active in the third quarter on the sales and marketing front as we continue to invest in many local activities together with customers. Implantology performed very well in the third quarter, premium as well as challenger. Amongst many other events, we continued to position Neodent in Europe, launched our innovative ceramic implants, Neodent ZI in Brazil, and held the Anthogyr X3 customer event. As mentioned, one of the highlights was the EAO Congress, which took place in September in Geneva.
There, to continue promoting our Immediacy portfolio, we hosted Zygomatic expert meeting and more than 750 participants registered for the Corporate Forum where we also presented the Roxolid SLActive study.
With this, let's move to slide 16 where I would like to tell you more about our latest investment in SmileCloud, which I believe will be an important milestone in developing our digital dentistry offering.
The dental environment continues to be transformed by digital innovation, and we aim to be at the forefront of providing an exceptional customer experience for dental workflows in both orthodontics and implantology. This is why we are always looking at innovations that provide a platform-based approach with seamless connectivity to our services and solutions, knowing intraoral scanners are the entry-point to each and every case in the future. SmileCloud is a young and dynamic company focusing on smile design and centralized collaboration platform developed by your dentist for dental professionals. It allows clinicians to design virtual mockup smiles for patients with the support of 3D biometric smile libraries using AI technology to support the most real realistic stimulation and best possible treatment outcome for patients. SmileCloud is enabling seamless collaboration amongst dental professionals and allows them to improve patient interaction by easily visualizing their future potential smile.
The solution is already available to all dental professionals in Europe for the time being, and we are focusing on integrating it into all most common workflows and solutions to drive efficiency and simplicity. I'm very excited about this new strategic partnership which will drive our digital dentistry offering forward in order to fulfill clinicians' needs. Our investment also enables SmileCloud to further develop its innovative technologies to improve the clinician and patient treatment journey.
Moving on to Slide 17, I'm proud to share more about the latest ClearPilot 5.0 software release which the team delivered as promised in October. This new version was released with additional functionalities to support the orthodontist specialist expectations to achieve the best possible treatment outcome for the patient. One of the most requested additions for detailed treatment planning is the new Bolton insightful analysis tool. It is a scientifically based medical analysis for determining discrepancies between the upper and lower jaw, which helps with treatment planning.
The new tool also includes Collision Management, which helps to determine if there is enough space between the teeth to allow for movement as well as an improved predictability functionality. This release is an important step towards addressing our orthodontic needs in their daily work.
On Slide 18, you can see that we are also working on the geographical expansion of ClearCorrect. In August, we have received a ClearCorrect regulatory approval in China and started to produce in our new production facility in Beijing, which help us prepare for the launch next year. This is an important next step in the geographical expansion of our orthodontics business.
On Slide 19, I would like to give you an update on our consumer presence development. Following the successful completion of the Plusdental acquisition and the review of the future brand strategy, the group concluded it will run its direct-to-consumer clear aligner business in Europe, exclusively under the Dr Smile brand. As a result, the group combined its capabilities in several areas, particularly in medical expertise in the orthodontic space to ensure high-quality care can be offered to health professionals. Talents from the Plusdental organization across different functions and levels decided to join Dr Smile. In particular, we are pleased that the Chief Medical Officer from Plusdental is now part of the Dr Smile team to further upgrade medical excellence. In addition to further develop the capabilities of the brand, Dr Smile has also expanded its business in Portugal and is present now in 11 countries in Europe today.
This brings us to the full year outlook on Slide 21. While the patient flow was not as dynamic as in the previous quarter in some regions, the demand for dental treatment remains good, which enabled the group to continue its growth from the first half through the third quarter. In addition, our innovative solutions and strong execution drove growth in the third quarter and led to continued market share gains. As always, we'll seek to anticipate and mitigate any potential disruptions coming from geopolitical developments.
Based on the continued patient demand for our solutions and the confidence in our high-performing team, the group raises the full year guidance for organic revenue growth to the mid-teens percentage range and expect profitability at around 26%, including significant growth investments.
Now I would like to open the question-and-answer session. [Operator Instructions] Chorus Call, can we have the first question, please?
The first question comes from [Daniel Adlington] from JPMorgan.
Firstly, just on China, and particularly next year, given you've got VBP as a headwind, but you've also got [Ex Comp] and the clear aligner launches. Just wondering what your prospects were of growth in FY '23 in China? And then secondly, just on Russia and Ukraine. Just wondering if you're continuing to supply there and whether you plan to continue to supply there.
Well, Daniel, I think this is -- those are really obviously key questions, especially for 2023 in China. And the answer is that we don't have full visibility again on how the VBP is going to play out. We have received the initial information as called by document 1, where we know some input of the Chinese government to try to organize that VBP. But we don't know yet pricing expectations and some additional detail, which are critical for scenario planning in then the document 2 to that should be released by the end of November. Then at this moment in time, it's difficult to express exactly what will be the situation in China in 2023.
However, this being said, we believe that we are in position to, of course, play within the VBP with all our different brands. I think we are 4 brands now in China. We have Straumann, we have Anthogyr, we have [P+] and we have Warantec. And then we have the premium, the upper challenger and 2 eco lines that will allow us to capitalize on the opportunity from a volume standpoint. Then all in all, we think that we are going to play our opportunity at the max, and we will take that into consideration when the VBP rules are going to be completely expressed. And we still believe that China is an interesting market for us to invest as soon as we are playing well and efficiently, and this is what we are going to try to do in 2023. For Russia and Ukraine, I think this is -- this obviously is a kind of a standing still situation here with much limited than the consumptions that we see in those markets.
Ukraine actually have been a bit more active because they try to get back to life and we have been supporting our distributors very actively in order that they can resume activities and support dentists that are performing treatments. And I would say Ukraine is starting back again even if it's a very low number for us. And Russia has been a rather, I would say, stable and declining as it was planned in the second half of the year for us. And we are going to see all this very difficult and terrible political environment is evolving to see what 2023 will look like in this part of the world.
The next question comes from Christoph Gretler from Credit Suisse.
First of all, just wanted to remark that we are quite impressed by your performance of Straumann and your employees here, given the environment. To my questions, 2 of them. First, could you comment on the visibility, near-term. And I think in the past you mentioned that there is some insights into dentist schedule for the next couple of weeks. Could you indicate what you see there and particularly kind of in the main markets in the U.S. and Europe? And I understand you have relatively tough comps in Q4. So I was just wondering if you could comment on that. And the second question with respect to your in and outsourcing strategy in digital equipment. There was obviously some news flow about Medit lately. Could you maybe discuss in general terms how you see these in-sourcing, outsourcing strategy at Straumann with respect to dental equipment and what are the positives and negatives and how this will likely change given the business gets bigger and bigger. So that would be my 2 questions.
Thank you, Christoph, and thanks for the comment, much appreciated. What we can say, I think, on the visibility side, as we raised our guidance, we are obviously confident that Q4 will still develop positively versus than the previous year despite the hard comparison. We see still a good patient flow and especially on the implant side, then a little bit what we expressed since the beginning of the year seems to realize, which is good news because it was just assumptions that the implant side is now more resilient to more difficult times because GPs are now placing implants, and they are keeping those kinds of activities into their practice and do not replace that by free unit bridge as we have seen in the past. Secondly, we also see that implant treatment is more a functional treatment than an aesthetic treatment.
And when a patient has really some tooth ache or would like to get a tooth replaced because there is no other option, the implant is now considered at the gold standard, meaning that we are not suffering so much for downgrading the implant treatment approach, which is so far at least a positive news for us. Secondly, when it comes to the in out sourcing activities, I think we -- looking at what's the strategy of the Straumann Group here, how do we look at the world on the Digital side. We are seeing 2 different approach that are closed system on the one side, and we have competitors that are trying to maintain a customer and a clinician into the closed environment. And we are believing more on the open systems and open environment, exactly like some of our partners are doing.
We believe that the clinicians should buy a piece of equipment and should be free to what he's doing with it and where he is setting it up. That's why we have partnered with 3Shape and Medit as well because they are both promoting and developing open ecosystems where we can then implement our platform. Why are we having 3Shape, Medit and Vivo in our portfolio, that was the second very important, I would say, principle in our Digital strategy. We want to be able to offer different price points like we are doing on the implant side and offering the high-end premium with 3Shape, which are now also developing some mid-price range products. With Medit that was in the mid-price range to the low-price range. And into the entry segment where Vivo is playing and is actually getting a lot of traction.
Then thanks for this -- the fact that we are covering all price points, we are positioning ourselves as a good partner for digital dentistry for all the customers we serve. Finally, how we want this to evolve, it's all about making sure that we are driving market penetration because this is increasing overall the consumption of our products, that we are keeping the open world that leading of a more closed environment, where it's reducing the access to clinicians. And we are wanting also to increase our gross margin on those products by adding some of our own systems and make sure we can balance the in-sourcing and outsourcing approach to our digital technologies.
The next question comes from Julien Dormois from BNP Paribas.
One relates to the clear aligner business because it seems that you had a pretty strong quarter actually in clear aligners. And I think you also commented that you saw a sequential acceleration, particularly in the U.S., if I'm right. And that obviously comes in stark contrast with what your main competitor, Align, reported last week, where they saw a pretty steep sequential slowdown. So just be interesting from our side to understand what is really different at this time between the both of you and how you are currently achieving a much better performance than those guys?
And the split in that between Europe and the U.S., that would be really helpful. And the second question relates -- it's more a housekeeping question, I would say, relates to margin. You have -- it seems that you have slightly raised the margin guidance now, getting rid of the constant currency mention. Would you just be so kind as to helping us what would be the expected impact on FX at this point in time for the full year, just so we understand what sort of upgrade we got this morning.
Clear aligner, yes, I think we've got a better quarter in some regions than the second quarter. But on our side, what we can comment and as usual especially if I take Europe, Europe has been positive for 2 reasons. First, we are starting from a low base, and we have always to highlight this. That's why we are also working a lot on market penetration, which is, of course, easier when you don't have a strong overall base to defend. And the second thing is our also direct-to-consumer, is still allowing us to develop our presence in Europe, which has been quite healthy also during the third quarter. The Dr Smile integration, well, the Plusdental integration to Dr Smile has been successful, has been really fast.
We have been very, very pleased with the team, integrating the 2 companies together, being not disruptive to the business and bringing the best out of the 2 worlds. Then I think very fast integration and then successful outcome from a volume standpoint. North America, I would say -- I would not say that it has been a stellar quarter, but, yes, the demand has been less impacted by macroeconomic environment at the second quarter. We see then the demand being a bit more dynamic, but we believe we are not there compared with where we were last year as an example. On the margin side, Peter, you want to comment on the ESG?
Yes, Julien. Thank you for the question on the margin side and especially the impact of the FX on the margin. If you look at our half year results, you see we had a negative impact on the operating margin of roughly 60 basis points. Now in the third quarter, we saw an up and down on the FX development with a very dip in the euro, partly a bit mitigated by increase in U.S. dollars. Now in October, we saw again an appreciation of the euro. So obviously it's a little bit reading in the glass ball, I would say. However, for the full year, I would expect given current FX level, as we see them, I would expect a negative impact of roughly 1 percentage points on the operating margin. In addition, you see at the very end of the presentation, you see the revenue breakdown by the different currencies, if that helps you in updating your own assumptions.
The next question comes from Daniel Jelovcan from Stifel.
First question is on the premium implants. You mentioned BLTs still growing double digits and quite positively surprised. I mean, the product is already 80 years old. So where does this dynamic development comes from, especially considering the macro environment? I mean do you train new docs or is competitive accounts conversions still ongoing? And then also in this context, you mentioned BLX as well. How about BLX, is that doing well? Is that cannibalization of BLX or is it entering a new space? And the second question is also like before on DTC, Dr Smile. Sometimes I hear that orthodontics are not really very happy about your approach with to smile, but I'm not sure if this is really, is maybe badmouthing of competitors. So can you explain the target group for Dr Smile or actually the current users are there mostly GPs or do you also now refer with Dr Smile to the specialists? That would be great to have some more granularity.
Well, when it comes to BLT, actually we have not said BLT is double digit, but I would say at least on a quarter, but it's obviously very healthy and growth is also significant. Why are we having a still very dynamic BLT growth? This is all linked to market share gain and the very strong impact of our immediacy campaign that will keep driving hard in the marketplace. Why is that? A lot of clinicians are using fully tapered implants, BLX, TLX for then demanding cases or advanced cases when you do then the immediate placement or immediate loading where you need more primary stability. However, you don't need the so-called more aggressive treatment in all the different cases. And when you have simple cases or cases where you have delayed loading, then you can use the more traditional apically-tapered design, which is obviously very well documented, very safe and very, very strongly performing.
And what we have seen is that we have been able to gain and we are still gaining a lot of customers, thanks to our Immediacy treatment that we convert with our BLX or TLX and zygoma and which later on are by the Straumann technology, i.e., the very unique features and benefits that are linked to our Roxolid material technology and our SLActive surface or faster osteointegration, which is then convincing them and they are bringing all their -- then the consumptions or implant usage to the Straumann side by afterwards including their portfolio, the BLT implant as well. And this is -- this kind of a pull-through that we are getting with BLT coming from our Immediacy approach and our new customer acquisition strategy.
For the Dr Smile side, the Dr Smile side is obviously in different industries when you have some channels, different go-to-market with different channels you may have some channel conflict when the Dr Smile approach is not well understood because a lot of clinicians at times are mixing up in between the SmileDirectClub setup, which is a really direct-to-consumer with not having any clinician in the loop. And that's why a lot of work on our side is done on communicating and explaining this channel and distribution model to clinicians in order that they can understand, they can be part of it. Then most of the Dr Smile network dentists are GPs, that are also then leveraging the capability for Dr Smile to increase patient flow. But we are seeing also specialists being interested because we are now able to drive, and we are putting some platform in place where we can redirect the more complex case that you cannot bill from a GP standpoint directly to specialists as well.
And this is a pilot which is done in Germany to see how we can potentially help then those patients that are very complex case needing very high expertise being treated by specialists. This is an ongoing process. But together with driving more patient flow in those difficult times and helping patients to get more complex treatment with better communications in between the channels, we think that those are channels that can live side by side and deliver growth on one side and also happy patients on the side.
Would you mind, just the BLX, cannibalization of BLX, or is that a different customer group?
TLX and BLX are the same customer group for Immediacy treatment, some prefer to have the, let's say, what we call the biological gap at a high level, and the TLX is allowing you to do better or easier prosthetics, but that's the same design on the low side of the input, which is fully tapered, and that's the same group of Immediacy in the Straumann portfolio.
The next question comes from Maja Pataki from Kepler.
Guillaume, I'm just wondering whether you can talk about the aligner market in China. I mean you now have the approval for ClearCorrect to enter China next year. And while at the same time we're hearing that there is quite a big price war ongoing among various players in China on the aligner side and also discussions to include aligners in the VBP contract. Has your view on China as a aligner market or aligner growth market changed over the last 2 years? Or do you still believe it's a market where you want to be at present? And how quickly do you think you will be able to get a foothold in the market?
Yes. Thanks for the question, Maja. China is one of the largest market of clear aligner in the world. And if you would like to be a significant player globally, then this is clearly a market where you want to play. Are the market conditions challenging, yes, they are, but there are opportunities at the same time. And when I look at the price, yes, there are some challenging price war at the moment. But I think we see also the fact that the volume market potential is amazing, then being able to drive volume and being able to get a lot of capability to grow for our organization is still something that we have to consider. The first one is obviously, this is led by a large part of our organization in China that we are able through this to amortize also a lot of our structural cost.
And that's on this side, then we have the overall profitability, which is -- also has to be considered and not only the gross margin, but the overall profitability that we can get from this country with integrating all our different business. Clear aligner will be also very well integrated into the whole digital workflow. And when you are setting digital workflow and digital platform used for the dental planning, dental implant, it will be also a very obvious addition to be able to do your patient case, and this synergy effect would not be underestimated in the future.
And finally, we think that our technology will allow us to have also very interesting benefits for the consumer, then we are really looking at China as, while very competitive, as an interesting market for us to generate growth and being able to combine that with the existing business we are having in this country. And sorry, Maja, just coming to the VBP. We have heard also about the VBP. There is no really clear -- there is no time line on the first side. Secondly, we know that VBP is more focusing on the public sector to start with. And the public sector of clear aligners is really limited at this moment in time. Then more will be needed to know on this side, but VBP is still pretty unclear on this side of the business.
The next question comes from Daniel Buchta from ZKB.
Congratulations on my side for the very good quarter in a difficult environment. Maybe the first question coming back to VBP regarding implants in China. I mean I fully understand that you don't have full visibility yet in how this will evolve in the next couple of months. But I mean the 2 main factors or questions are on the one-hand side on the price cuts. I mean, in the past, I remember you mentioned 50% to 60% lower ASPs. And also, the second important variable is basically the spillover or not from the public sector into the private market where you assumed roughly 1/3 is public with relatively limited spillover effects. Are those 2 assumptions from your side still valid for next year? Or has something changed in that regard, especially the spillover, because to my understanding, the Chinese government is putting pressure on private providers also to participate on that.
And then the second question may be regarding Slide 10 where you have shown the organic growth by region. If I look at EMEA, I mean, obviously, the first quarter was exceptionally strong this year. But also second quarter was very good, and now we see another slowdown towards 15%, which is still obviously awesome in this environment. But what is the main reason for this slowdown quarter-over-quarter now? And also, I mean, how is Dr Smile holding up given what we see on the aligner side in the U.S.? Is it still performing that strongly? Or is there also some slowdown visible?
Lot of questions. Daniel, no worries. Then let's start with the VBP event in China. And that's fully agreed view, that's very good. That's a good way to look at it. The first is ASP. The second one is spillover. Third one, we can say what's the volume potential gain that we can get out of it, we're making sure that patient will then much more be -- can afford much more implant treatment. We are still taking the assumptions that overall ASP will go down 50%, 60% from an implant price, meaning that this is the sell-out from our side because this is distributor to the public sector. Then there is a part of this impact which is going to be absorbed by the distributor and in part by ourselves. And a part of the scenario planning is that we are not going to get the full heat of 60% but a part of this one, be it half of it, being a little bit more or less than half of it. It still has to be seen, but we will share a part of the burden with the distribution network.
Spillover versus the private side, yes, I fully agree. The government is putting a lot of pressure on the private side. However, something which is important to know is the private side for the price towards the patient, it's already quite lower than in the public sector. Public sector having the highest knowledge and public hospitals has been doing the most complex treatment from the inception of the implant business in China. Then some of them are already having quite some competitive pricing to the patients, not at the same level than the future pricing for patients, but meaning that the ASP impact will be anywhere lower, be some significant impact on the private sector.
We still believe here that we have a way to keep some good ASPs on the private side because they need some support to finance their growth and need some support to also do a lot of education, which means that there are also some possibility for services to not having an ASP which is going to deteriorate too much. And additionally, we obviously expect a lot of volume gain for the brands that are going to be selected, which would help in some way as well to amortize some of the overall structural cost of the organization. When it comes to Europe or EMEA, Daniel, we had a very strong quarter with some specific impact in the also Middle East region. We had -- well, we consider 15% being a very strong growth rate. We had a strong impact also on Digital that was there in the first half. Our 2021 first half in Digital was not so strong, and then we had also a good comparative period.
And our -- then the very significant Digital business has increased our first half in EMEA, that has been also some interesting contract we had with DSOs on the Digital side, help us to boost our volume in the first half in Europe. Then we see also then the patient flow going a bit softer, especially in countries like Western Europe, while Eastern Europe is still quite dynamic. And at the end, I would say, looking at Dr Smile, yes, Dr Smile is still very healthy. We don't see significant slowdown despite the consumer confidence, which is going down because we believe that the target group they are addressing is a bit different than the typical one going to the dentist that was still like still an emotional buy where available income for young, urban, dynamic target group seems to be still quite significant for them to afford those kind of treatment.
The next question comes from James Vane-Tempest from Jefferies.
I have 2, if I can, please. Firstly, even at this stage, you can't give specific guidance for next year. Can you give us some thoughts, please, around how we should think about phasing into next year, also the effects of price increases as well as we gather you haven't increased prices as much as some of your peers and the potential for kind of new product offerings. And that's my first question. And then my second question, if I can just come back to some points you made earlier on the consumer. Just wondering, you mentioned the sort of more kind of resilience. But given they are sort of higher mortgages, general inflation, just wondering if you are starting to see any behavior differences at the moment and also perhaps between consumers and dentists as well in this environment.
Thanks, James. 2023, again, I think it's difficult to plan for the time being. We are not there from guiding on 2023. But something that I expressed at the beginning of the call is, I think, important. It does seem that our core at least activity on implants have some resilience versus, for example, the clear aligner side and that implant is seen as a major part of the dental clinic activities that they are really maintaining these activities very significantly and still focusing on this one. Then if we apply this resilient perspective to 2023, then there is some, of course, a positive perspective about having the capability to face still difficult macroeconomic situation and still being able to deliver thanks to some regions that are also less affected to deliver a positive 2023.
Then of course we will see our Q4 develop, and we'll be able to give more color for next year during our next call. When it comes to the direct-to-consumer or the clinicians, how do they, I guess, see the impact that they have on mortgage and so on. I think this is obviously a key question. We are again, as we speak, not seeing a very significant change in the way consumers are being addressed by, for example, the direct-to-consumer activity. They are more -- less qualitative, I would say, activities but a much more qualitative data. And you need to be, I guess, more selective and much more targeted when you do those activities to make sure that you can generate the profitability that we have been used to. And that's a lot what our marketing teams are also trying to do as well as our sales team or the clinicians on the -- on both the implants and the clear aligner side. And all in all, we don't see any important disruption in consumer behavior at this moment in time.
And perhaps if I could ask you a part of my first question in a different way, just on pricing. I understand you haven't booked price increases through as much. How we should think about that and timing for that next year?
Yes, sorry, James, transitional prices, yes, pricing, no, no, we are -- I think we have done pricing increase at the beginning of 2022. We have actually realized price increases because this is also our ASPs have seen this effect that we started to do in the beginning of 2022. And we are planning, of course, a price increase in 2023 that will be higher than the one that we did in 2022 for absorbing a good part of the increasing costs we're having on our side based on the inflation effect.
The next question comes from Falko Friedrichs from Deutsche Bank.
And my first one is whether you can provide a bit more color on your start to the fourth quarter now. And I'm asking because one of your competitors seems to have flagged a bit of a slowdown in dental implants. And there are also dentist trading down a little bit in October. So I'm wondering whether you noticed that at all? And then my second question is on your equipment business and whether you noticed any softening in demand in the third quarter or the beginning of the fourth quarter now, given potentially lower CapEx spend by dentists.
Well, on fourth quarter, I would say the situation is not falling apart. This is what I can share. It's too early to say, but we are still seeing a good or positive patient flow in the dental practice. Then I think expressed also then at the beginning of the call, we see some softening in some region. Then it's not as dynamic as it was during the first half. But it's still helping there, and we are positive for the fourth quarter to be still a positive quarter on our side as well. On the third quarter on Digital, it has been a very good quarter. It has been dynamic.
There is still quite some demand in the technology. Where I would go support your statement about down trading, I would say, this is true on the Digital side because a lot of GPs are now acquiring those tools, especially to have a lot of potential to acquire and to do those kind of investments because they have also a high gross margin from their activity. GPs are a bit different, and they are representing now the bulk of the market to still penetrate. And they are looking at what are the solution alternative to them. That's why having on our side, 3 different options from a price point, it's really interesting. And while we see this down-trading on the Digital side, we have not seen that in the rest of activity, be it implants or be it clear aligner.
Okay. And when you say you see some softening in some regions in Q4, I assume that refers to the clear aligner business? Or would that also account for the implant business?
Well, we -- to be precise, I did not say Q4. I say we see some softening since the second half where we have seen a good patient demand, but not as dynamic as before. And the softening is on, I would say, more on the clear aligner side than on the implant side. And if I would say is that it's a lot of clinicians saying that it's more difficult to convince patients. And that's why, again, the time to treatment is increasing, then there is more delay in accepting treatment, but they have not so much challenge in getting cancellation of people completely rescheduling treatment to no clear date. Then so far, I would say it's taking more time to convince patients that they are still coming to the practice to get their treatment.
The next question comes from Oliver Metzger from ODDO.
The first one is on your move from Plusdental to Dr Smile. So it appears that you leave dentist-driven pathway to a certain extent of a B2C offering. How do your economics change as the Dr. Smile approach seems to be leaner and therefore more profitable for your side. Number 2, it's quite a general question on market dynamics for dental implants. Could you remind us where do we stand with regards to penetration rates of dental implants compared to the conventional treatments. So if you talk about the addressable market, it's more like the existing markets, but where it stands, the overall market compared to total tooth replacement market? And what does it mean, not from a short term, but more from a mid- to long-term perspective really to drive up further penetration rates?
Yes. When it comes to Dr Smile and the integration with Plusdental, then I think we have some of that combined effect that are positive for the profitability side. I think it's still an investment territory because you need still to drive the brand out there and to be the first choice as a brand when a consumer is looking at this type of treatment. And there are still competitors out there which are providing the same kind of offering. Then it helps to have the critical mass in order to address this market in the best way. Then I would say, from this side, it was a positive move for us. And also, we believe, for the future. When it comes to the overall implant market, I think we have said our really exciting future and our 5 billion is coming from the fact that we are still operating in a very unpenetrated market.
Our evaluation is that there are 2 billion missing teeth that could be replaced in the world from -- that's why we are working a lot in market penetration, in accessibility and affordability. This is where education is still a key piece, especially in geographies like Asia Pacific, in Latin America and still in countries like Europe and North America. There are still a lot of dentists that does not know to place implants and that want to learn in order to deliver the right patient care and not doing free unit bridge. Secondly, it's a lot about accessibility.
That's why the fact that we are covering all the different price points with all our brands in between the premium with innovation in -- together with the challenger brands with more affordable pricing and also then the compatibility of surgical kit, which is allowing dentists to have lower transfer costs when they move one brand to some of our challenger brands, we believe that we are, well, the best organization to be able to realize the largest part of this addressable market that we need still to keep opening in a lot of those different geographies. And we don't have a lack of opportunity to grow when we look at the different markets we are in.
The next question comes from Veronika Dubajova from Citi.
I have 2, please. One, I just want to go back to your China commentary, Guillaume, if that's okay, from the beginning. And I think in the past you sounded pretty confident in your expectation that China would still grow in 2023. I'm wondering if you are still willing to reiterate that or if your thinking on that has changed. So that's my first question. And my second question is clear aligners, that hoping you could give us a little bit of help in terms of helping us think through how large the business is today, geographically, U.S. and OUS, how you'd break that down, given all the various acquisitions that you've done? And then maybe just comment on the growth rates that you've seen year-to-date in the U.S. versus in the rest of the world even approximately would be super helpful for us.
Hi, Veronika, when it comes to China, I think, again, I cannot tell you because we don't need the rules of the game for 2023. Then I would love to be able to tell you, well, I'm sure that we are going to grow in China in 2023. Our assumptions are showing that we can still potentially grow in China in 2023. Now it will depend about the conditions in which we are going to evolve. But there are scenarios that are very likely also to happen that could deliver us some, I would say, single-digit growth that we would be able to achieve in China. And once again, when we will have the document 2 and seeing how the VBP will play out, we'll be able to give more visibility.
On the clear aligner side, I think we had -- and it was since the beginning, that North America is still, I would say, on the B2B side, a large part -- the largest part of our business, if you exclude the direct to consumer. If you include the direct to consumer, I think it's more getting to the same level. We are having growth rates that are stronger in the rest of the regions than North America just because of our penetration rate. Then we are starting in many markets, like in Europe, in Asia Pacific, in Latin America. And thanks to our very solid base then our growth rate are more dynamic than the one we see in the U.S. And that's where we believe it will still be the case for a while in why we are going to get more balanced business in between all the regions or this is the case in the implant side.
That's very, very helpful, Guillaume. And then maybe just -- I think in the past, you've talked about sort of your core aligners being about 10%, 11% of your sales. Is that still the case in 2022?
Yes, it is.
The last question for today's call comes from [Benjamin Philipe from Intercept].
These are 2 ones. They are both about the aligner market. The first one would be, as it is such a growing market, there's also increase in competition by smaller companies who are entering this market. I was wondering how serious is this competition for Straumann. And how do you aim to differentiate from your competitors? What makes the difference in Straumann's case?
Yes, Benjamin, I think good question. We also agree that there is a lot of competition coming in as it has been the case on the infant side when we have seen all the challengers segment coming in 10 years ago. Then what are the key differentiators of Straumann versus the small player. The first one is, and it will be the same on the implant side, it's innovation capability. I think the implant market is a very dynamic market when it comes to innovation, a lot on the software side that sometimes we don't see. But getting the treatment planning faster, more adapted to the case, more consistent in the realization of the case is something that you are seeing very often after the treatment if it has realized as planned. And this is where some of the small players are still struggling.
We've been capable to develop software as fast as more the large organization who have the mean to invest significantly in the software side. The second approach is education. A lot of GPs would like to start. They are all willing to do clear aligner, but you need to be able to train them and to educate them about what is really about moving teeth. There is no magic into clear aligners. You still need to learn your ABC of orthodontics, knowing what is possible, what are the case you can treat, what are the case you can't treat, how then you have to convince the patient, how you are helping him also to go through the treatment, how do you monitor your case. I think there is a lot of education to be done and support to be given to the dentist without having a significant support locally on the field, meaning that you need to invest in your feet on the ground, then it's difficult to really reach a significant size.
Then that's the 2 very big point where the differentiation in the value proposition of Straumann with regard to technology, speed and frequency of innovation and education plus support on a local basis is making the difference.
And my second question would be about your main customer segment when it comes to clear aligners. I read some research that said about 2/3 of the patient groups are teens, teenagers, and about 1/3 are adults. And I was just wondering, is Straumann targeting teens as well as a customer group. And what do you think about this? I mean, shouldn't we be a bit cautious? I mean daily life for teenagers is already, because of social pressure, it's already like a daily beauty contest, isn't it?
Yes, you're right. I think if you look at the number of total ortho cases, 2/3 are teens, 1/3 are adults. However, when you look at clear aligner, it's exactly the opposite. Clear aligner penetration has been strong in the adult side because I think 2/3 of the clear aligner cases are doing with adults and 1/3 on teens only. What is the reason for having more prices and brackets on teens is the fact that orthodontists are still trusting more compliance with clear braces and brackets, obviously, because, well, you cannot remove them. And when the patients are paying quite an expensive fee for the treatment, they are also wanting to make sure that the compliance of their kids for having the treatment will be there.
Then the -- however, the clear aligner are gaining ground on the teens treatment as well. ClearCorrect has been approved just a couple of months ago on the teens treatment case as well. But as they are also more advanced, very often this is done by orthodontist specialists. Then I would say our product portfolio is ready for teens. But our go-to-market is still waiting for having our software able to deliver the necessary features and benefits that ortho are expecting in order that we can penetrate more actively this area. This is what is planned for 2023. We are still planning adding our ClearPilot 6.0 in the end of the first half of 2023. We are really pleased with this. And that should allow us to address in the ortho specialty segment and where we would be starting then to enter the teen case segment. Okay. Thank you. Then I would like to thank you for your attention.
We look forward to speaking to you again soon, and we wish you a nice day and a warm goodbye from Basel.