This transcript includes some company data that does not directly conform to
generally acceptable accounting principles, or GAAP. Management believes that
the presentation of some non-GAAP data provides investors with additional
insight into the ongoing operations of the business. These measures should not
be viewed as an alternative to GAAP measures of performance. Furthermore, these
measures may not be consistent with similar measures provided by other
companies. The following are reconciliation schedules that provide
reconciliations of these non-GAAP financial measures to the most closely
comparable measures determined in accordance with GAAP.
DENTSPLY INTERNATIONAL INC.
(IN THOUSANDS EXCEPT PER SHARE DATA)
Earnings Summary:
The following tables present the reconciliation of reported GAAP net income in
total and on a per share basis to the non-GAAP financial measures.
Three Months Ended March 31, 2006:
Income Diluted
(Expense) Per Share
------------- -------------
Net Income $ 50,004 $ 0.62
Restructuring Costs 3,054 0.04
------------- -------------
Adjusted Non-GAAP Earnings $ 53,058 $ 0.66
============= =============
Three Months Ended March 31, 2005:
Income Diluted
(Expense) Per Share
--------------- -------------
Net Income $ 49,049 $ 0.60
Stock-Based Compensation Expense (2,773) (0.03)
Restructuring Costs 164 0.00
Rounding - (0.01)
------------- -------------
Adjusted Non-GAAP Earnings $ 46,440 $ 0.56
============= =============
DENTSPLY INTERNATIONAL INC.
(IN THOUSANDS)
Operating Income Summary:
The following tables present the reconciliation of reported GAAP operating income
in total and on a percentage basis to the non-GAAP financial measures.
Three Months Ended March 31, 2006:
Percentage of
Operating Sales Excluding
Income Precious Metal
(Expense) Content
------------- -------------
Operating Income $ 70,008 18.24%
Pre-Tax Restructuring Costs 4,697 1.22%
------------- -------------
Adjusted Non-GAAP Operating Margins $ 74,705 19.46%
============= =============
Three Months Ended March 31, 2005:
Percentage of
Operating Sales Excluding
Income Precious Metal
(Expense) Content
--------------- -------------
Operating Income $ 70,125 18.99%
Pre-Tax Stock-Based Compensation Expense (4,386) (1.19%)
Pre-Tax Restructuring Costs 268 0.07%
------------- -------------
Adjusted Non-GAAP Operating Margins $ 66,007 17.87%
============= =============
DENTSPLY INTERNATIONAL, INCORPORATED
Moderator: Gary Kunkle
May 4, 2006
7:30 am CT
Operator: All lines have been placed on mute to prevent any
background noise. After the speakers' remarks there will
be a question and answer session. If you'd like to ask a
question during this time simply press star then the
number 1 on your telephone keypad. If you'd like to
withdraw your question press the pound key.
Thank you. Mister Kunkle you may begin your conference.
Gary Kunkle: Thank you (Luann) and good morning and thank you
all for joining the Dentsply First Quarter 2006 Earnings
conference call. My name is Gary Kunkle and I am the
Chairman and Chief Executive Officer. Also with me today
are Bret Wise, our President and Chief Operating Officer,
and Bill Jellison, Senior Vice President and Chief
Financial Officer.
I will begin today's call with some overview comments
regarding our first quarter results and our overall
business. Then before turning the call over to Bill, I
will conclude with some remarks regarding our outlook for
the balance of the year. Bill will then take you through a
more detailed review of the P&L and balance sheet. And
finally we would all be pleased to answer any questions
you may have.
Before we get started it's important to note that this
conference call may include forward looking statements
involving risks and uncertainties. These should be
considered in conjunction with the risk factors and
uncertainties described in the company's most recent
annual report on Form 10K, its subsequent periodic reports
on Form 10Q, press releases, and conference call
transcripts filed with the Securities and Exchange
Commission. This conference, in its entirety, will be part
of an 8-K filing and will be available on our website.
By now each of you should have received a copy of our
first quarter earnings announcement that we released
yesterday after the market close. Our reported sales
during the first quarter were $431 million. This
represented an increase of 5.9% as reported and an
increase of 3.9% if you exclude the precious metal
content.
This increase of 3.9% broke out as follows. Our base
business growth was plus six point four, foreign exchange
was a negative three point five, and acquisitions was a
plus 1%.
The geographic base business growth and again this is
excluding precious metals was as follows. The United
States was 1.2%, Europe was 13.2%, and the balance of the
world was 5%.
As you look at the total base business of 6.4, this was
led by really strong performances in our orthodontic and
implant businesses and high single digit growth in our lab
business. Just as an additional note, the orthodontic and
implant businesses have now shown consistent high growth
for Dentsply quarter after quarter and as a result they
are among our highest priorities for sales representative
expansion.
Looking specifically at the United States, as I stated
before, the US internal growth for the first quarter of
2006 was 1.2% which at first glance was disappointing. In
analyzing the underlying cause however, there were two
major contributors to the lower growth, both of which are
expected to be isolated to the first quarter only, with no
continuing impact going forward.
These two items were as follows. First of all there was a
multimillion purchase or stocking order, if you will, of
Oraqix from Orapharma in the first quarter of 2005. This
was the first quarter of launch for Oraqix which obviously
was not repeated in the first quarter of 2006.
As you may recall they're our marketing partner for Oraqix
in the United States. All subsequent orders to the initial
stocking order appear to be replenishment orders therefore
we don't see this having any impact through the balance of
2006.
Secondly in looking back at last year there is a
considerable difference in the dealer purchases of our
restorative products in Q1 '06 versus Q1 '05. Restoratives
is the largest single category of products that we sell
through distribution in the United States.
The dealer purchase of restoratives in Q1 '05 were
considerably larger than the reported sales from dealers
of those products for the same period. Upon reviewing this
in hindsight we believe this resulted from receiving large
orders from our dealers in late December of '04 which was
just prior to an announced price increase.
We did not get these shipments out the door of our
distribution center until Q1 '05 thus this inflated the
purchases for that period and added to the abnormal
quarterly comparison for this large category.
As we look at Q1 '06 the reported sales or restorative
products to dental offices by our distributors is among
the highest quarters we've ever had for restoratives. This
gives us reassurance that the end-user demand for these
restoratives remains strong and that we should expect a
more normalized buying pattern from our distributors for
these products as we go forward.
On a more positive note we continue to see high growth in
the specialty groups of orthodontic and implants and good
growth in our crown and bridge laboratory products which
is led by our all Cercon all ceramic products.
Moving on to Europe as I mentioned earlier Europe's base
business growth for the quarter was 13.2%. Like our
overall growth Europe also saw strong sales in both
orthodontics and implants. Adding to this was strong
growth in our lab business which was led again by Cercon,
our all ceramic products for crowns and bridges, and of
course, a recovery of the dental market in Germany.
The first quarter of 2005 marked the beginning of the
negative impact of the changes in the dental reimbursement
in Germany and we should note that the first quarter of
2006 marks the beginning of the recovery form those
changes.
As we look at other markets Asia grew 13.7% for the
quarter. This was led by strong growth in China, I should
say mainland China, India, Philippines, and Hong Kong.
Latin America had base business growth overall of 8.5% and
this was led by strong performances in Colombia and Chile.
Just some comments on some other areas of interest. The
anesthetic business - as you will recall we announced in
February that we would be closing our dental injectable
anesthetic plant in Chicago. We'd be selling these
facilities and pursuing long-term supply agreements to
replace the production that was scheduled for this plant
in 2008 and beyond.
As a result of that shutdown and the elimination of
corresponding associated costs with it we increased our
guidance by 6 to 8 cents for 2006. The ultimate benefit of
keeping the plant open was expected to be between 10 and
12 cents but, of course, this benefit would not begin
being realized until 2008.
We continue to believe that we can accomplish that goal
and expect to show incremental improvement between now and
2008 with our goal of 10 to 12 cents ultimately being
realized.
We have shown the manufacturing facilities to several
potential buyers and are having discussions with others.
We have also had and are having numerous discussions with
potential long term suppliers.
Because this process is not complete I can't offer too
much detail as we are in continued negotiations. I can
offer, however, that we are very pleased with the progress
and we're optimistic about the outcome and we'll keep you
updated as we proceed.
Some comments on new products, there have been several new
products that have been launched during the past several
months. I will highlight just a few for you. I mentioned
during our last call that we had launched a new software
for our Cercon all ceramic systems called Cercon Art that
among other things provides the lab with better
utilization of the block making Cercon a cost-competitive
alternative to precious and non-precious metal crowns and
bridges.
We recently released Cercon Eye which is a stand-alone
optical scanner that is used in conjunction with Cercon
Art. The unit scans dies and models for crowns and bridges
and it scans them in a time that's less than 20 seconds
per unit and a precision of approximately 10 microns or
less which we believe is truly an advantageous feature to
what is currently on the market.
We also introduced two new ultrasonic scaling systems,
Cavitron Plus and Cavitron Jet Plus which also contains an
air polishing unit. Both bring tremendous improvement over
previous designs such as increased power, a cordless foot
pedal control, a diagnostic display panel, and improved
ergonomics.
This upcoming weekend at the American Academy of
Orthodontics we will launch two new orthodontic products.
The first, In-Ovation-L which is the first interactive,
self ligating lingual bracket system. This system provides
the aesthetics of a traditional lingual system with the
ability to provide, in the beginning, passive no-friction
treatments and then in later stages, active increased
friction treatments. What this means is the benefit of
this will reduce the treatment time for the patient and,
of course, for the doctor.
The other orthodontic product that is to be launched is
spelled C-R-Y-S capital C-E-R-A which is a ceramic buccal
tube. These devices are bonded to a tooth and they often
come in contact with the opposing tooth and this contact
often causes erosion or wear of the opposing tooth. Crys
Cera is a unique composition of ceramic that mimics the
characteristics of enamel, therefore having similar wear
and hardening characteristics and this prevents such
erosion and wear.
This is just a sampling of a few of the new releases. With
our already existing pipeline we expect again to exceed 25
new product launches in 2006. We're really very excited
about the new products that we've already released and
look forward to updating you on these products and others
during future calls.
Just in closing, before I turn the call over to Bill, I
would like to make some additional remarks. We are pleased
with our first quarter results and think it represents a
very good start for the year. We continue to be optimistic
about the balance of the year and are maintaining our
guidance of $2.80 to $2.85 per diluted share. This
includes the stock option expense but it does not include
any restructuring charges.
That concludes my formal remarks. I will now turn the call
over to Bill.
Bill Jellison: Thanks Gary. Good morning everyone. As Gary
mentioned, net sales for the first quarter of 2006
increased by 5.9% in total and increased by 3.9% excluding
precious metals. The sales increase ex-precious metals for
the quarter included a 6.4% increase for internal growth,
an increase of 1% from acquisitions, and a negative 3.5%
impact from foreign exchange translation.
The geographic mix of sales Ex-precious metals in the
first quarter of 2006 included the US at 42.7%, Europe
represented 38.1% this year, and the rest of the world was
19.2% of sales.
European sales as a percent of total sales inched up
slightly as sales in Germany improved during the first
quarter of 2006 compared to the depressed level in 2005.
The stronger dollar in the first quarter compared to last
year not only negatively impacted sales growth but also
added slight negative impact on earnings in the period.
Despite the effects of translation earnings were strong
this quarter as we benefited from improving margin rates.
Gross margin for the first quarter were 57.4%. That's
ex-precious metals compared to 56.6% in the first quarter
of 2005. Margin rates were positively impacted in the
quarter not only by improved product mix and manufacturing
efficiencies but also from the Company's decision to exit
its Chicago pharmaceutical facility. Gross margin rates
should continue to run at an improved level throughout all
of 2006.
SG&A expenses were $145.4 million or 37.9% of sales
ex-precious metals in the first quarter of 2006 versus
37.5% in the prior year's first quarter. The higher
expense level in the first quarter primarily resulted from
the expensing of stock options in 2006, which will impact
each quarter. If stock option expenses were included in
both periods SG&A expenses would have been lower than last
year by .3% of sales ex-precious metals.
Operational margins for the quarter were 16.2% compared to
17.2% in the first quarter of last year. If stock option
expense was included in 2005 operating profits would have
been 16.6%.
Operating margins based on sales excluding precious metals
were 18.2% compared to 19% last year in the same period.
Operating margins based on sales excluding precious metals
for comparative purposes, excluding restructurings and
including stock option expenses in both periods would have
been 19.5% in the first quarter of 2006 and 17.9% in 2005
for an improvement of 160 basis points.
We continue to believe that operating margins excluding
restructuring, but including stock option expenses will
run at least one half to one full percentage point higher
throughout 2006 as we continue to benefit from the items
highlighted in this period.
Net interest and other income in the quarter was $1.2
million, which is an improvement of $1 million compared to
last year's first quarter. Net interest expense improved
by $4.7 million in the quarter and other income decreased
$4.3 million, primarily as the result of a foreign
exchange transaction gain recorded in the first quarter of
last year. As we move through this year we expect net
interest to continue to run favorably as a result of our
net investment hedges and our lower borrowing levels.
The corporate tax rate in the quarter was 29.8% compared
to 30.3% in the first quarter of 2005 and the first
quarter's operational tax rate was 30.3%.
Net income in the first quarter of 2006 was $50 million or
62 cents per diluted share compared to $49 million or 60
cents per diluted share in the first quarter of 2005.
On a pro forma basis net income, excluding restructuring
costs but including the expensing of stock options in both
periods, which constitutes a non-GAAP measure, were $53.1
million or 66 cents per diluted share in 2006 compared to
$46.4 million or 56 cents per diluted share in the first
quarter of 2005. This represents a 17.9% increase in
earnings per diluted share on an adjusted or pro forma
basis in the first quarter of 2006.
Let's now look at cash flow and a few balance sheet items,
as well. Cash flow from operating activities was $11.4
million in the first quarter of 2006 compared to $25
million in the same period last year. However, the first
quarter of 2006 included $23 million of cash out flow for
the tax payments associated with the repatriation of
foreign earnings that were made in the fourth quarter of
2005 and a change in the classification of tax benefits
from share based compensation. Cash flow increased 38%
without the impact of those items in the period.
Capital expenditures were $9 million in the quarter.
Depreciation and amortization for the first quarter of
2006 were $12 million. Inventory days were 96 at the end
of the first quarter of 2006 compared to 97 at the end of
the first quarter last year and 90 days at the end of
2005.
We expect inventory days to improve slightly for the
entire year. Inventory - receivable days stood at 57 days
at the end of the first quarter compared to 52 days
achieved at year end. We do expect improvement in AR days
back to our target of the low fifties by year end.
At the end of the first quarter of 2006 we had $413
million in cash and short-term investments. Long term debt
was $187 million at the end of the first quarter. And in
addition we had $478 million of short term debt and a
derivative asset value of $16 million.
Dentsply repurchased $8 million of stock or approximately
146,000 shares at an average price of $56.88 in the first
quarter of 2006. Based on the company's current
authorization to maintain up to 5.5 million shares of
Treasury Stock we still have approximately three point two
million shares available for repurchase.
Finally, as Gary noted, we remain comfortable with a
diluted earnings per share range of $2.80 to $2.85 for
2006. This guidance includes the impact of expensing stock
options but excludes the impact of restructuring costs.
That concludes our prepared remarks and we'd be glad to
answer any questions that you may have at this time.
Operator: At this time I would like to remind everyone if you'd like
to ask a question please press star then the number 1 on
your telephone keypad. We'll pause for just a moment to
compile the Q&A roster.
Your first question comes from Derek Leckow with
Barrington Research.
Derek Leckow: Thank you. Good morning and good quarter.
Bill Jellison: Good morning Derek.
Gary Kunkle: Thanks Derek.
Derek Leckow: Question on modeling the revenue excluding precious
metals. As we look at the rest of the year Bill can you
help us out with the variance there between the overall
top line and the precious metals content?
Bill Jellison: From an overall growth rate moving forward or
are you talking about just looking at the FX related
impact or are you looking at just kind of expectations on
internal growth?
Derek Leckow: Actually I'm looking at just the difference - how
much in terms of precious meals do you think you're going
to be selling each quarter? Is there a way to quantify
that that we can sort of predict a little bit better what
the difference might be between, you know, the top line
and removing the precious metal content?
Bill Jellison: I think on the precious metals side obviously
part of that's always determined on where the pricing of
that precious metal is going. If you look at the first
quarter of this year and also the second quarter of this
year I think that you'll see some of that higher rebound
really associated with the depressed German market but
then for the rest of the year you typically see normalized
kind of growth within that area.
Derek Leckow: Okay.
Gary Kunkle: Derek probably an average quarter would be about $50
million.
Derek Leckow: Okay thanks a lot. And then on your comments
regarding the internal growth in the US, the 1.2%, you
talked about the issues there and those are going to be
isolated to Q1. I wonder if you could help us by talking
about the variance between the dealer purchases and your
sales out by broad product category like if you for
instance were to take out the specialty groups versus the
general dental group.
Gary Kunkle: I don't have it in front of me Derek. I can kind
of talk to it in general terms. You know, it's not unusual
for us, particularly Dentsply given the number of product
that we have sitting in dealer inventory to continue to
see inventories getting consolidated and it's happening
for two reasons.
One you're seeing, you know, acquisitions that larger
dealers are making smaller so that compresses the supply
chain channel. And secondly as larger dealers who have
more sophisticated systems and have better turns get more
volume then it takes more inventory out of the pipeline.
I think the third thing that specifically affects Dentsply
is, you know, over the course of the last six or seven
years we've improved our service levels to distributors by
about 40%. So by doing that it helps us reduce our
inventory but also helps them reduce their inventory.
So I think the three factors you'll continue to see
inventories getting reduced in our dealer network compared
to the sales out the door.
Derek Leckow: Okay. But okay got it. An then just on the subject
of internal growth and as it rebounds here this year I
guess is one of the drivers going to be the fact that your
priority is to put more salespeople out there? I think
you've mentioned that that's a priority. And can you speak
to what your plans are for sales force growth and perhaps
give us the numbers of salespeople that you have in each
of the major areas.
Gary Kunkle: Yeah. The increase in the two specialty areas we
really have done that over time. We're going to accelerate
that going forward because they have shown - they continue
showing very good growth. I know you'd like to hear the
numbers there but I don't want to give them for
competitive reasons. I'd like to hear my competitor's
numbers so I understand their resource allocations.
Derek Leckow: A direction we should always expect to see
incrementally every quarter you'll be adding salespeople
and I suppose you have, you know, people that you're
training internally. You're probably also looking in the
industry to get some experienced reps, right?
Gary Kunkle: All of the above.
Derek Leckow: Okay. All right that's it for now. Thanks a lot.
Operator: Your next question comes from Suey Wong with Robert W.
Baird.
Gary Kunkle: Good morning Suey.
Suey Wong: Thank you. My first question deals with Germany. With the
changes in the German reimbursement system last year
are you seeing much up tick in your Cercon ceramic
business?
Gary Kunkle: Very much so. In fact Suey we even saw it last
year. It was just disguised because of the overall
deflection of the market but we're extremely pleased with
what Cercon's doing and the growth that it has in the
German market and of course we expect that same growth in
markets all over the world.
Suey Wong: Great. Gary could you give an update on your lab business?
The strategy over in China?
Gary Kunkle: You know, for the sake of everyone else on the
call I probably should give some background. You know, a
couple of years ago we saw an increase in the number of
crown and bridge cases - probably simpler cases that were
going to lower labor markets. I think everybody mostly
identifies China but that's not the only lower labor
market.
Some large labs were buying foreign labs that were in
these lower cost markets and we saw some large labs and
some medium labs that were contracting with these. And
what the ultimate concern of ours was that first of all
you're seeing the US market suffer - lab market. And
secondly when they go offshore if you will they aren't
necessarily designating brand which is not to our benefit
because we do have a lot of brand recognition.
We saw this as a trend; did not consider it at all an
anomaly. And we needed to develop a strategy to make sure
that we weren't losing as a result of it.
So as you know we have presence in all low labor markets
and we wanted to offer - make an offering to our labs for
a finished crown and bridge so that they could free up
their labor which is more expensive to focus on higher
end, more profitable crowns and bridges.
When we did that we knew that we had to add space building
if you will. We had to hire people. And then we would have
to train them or we could acquire a facility with skilled
people in a training capacity and that's what we did.
We introduced that in the first quarter. Quite frankly
Suey there was a varied reaction. We had some people that
opposed it and really their opposition for the most part
was a concern that we would take this directly to the
dentist and bypass the lab. And I can tell you that
absolutely is not a strategy of ours. We have nothing that
goes to a lab that also goes to a dentist.
We also had many people that favored it. And they
immediately used up existing capacity that we acquired in
China. And beyond that Suey we also have had many people
since then that now are showing an interest that were
originally opposed.
I think it's going to be a little bumpy here in the short
term but absolutely believe it's the correct strategy. I
kind of equate it to the automobile industry. You know,
this is inevitable. It's like General Motors sitting
around waiting for Japan to stop selling in the US. It's
just not going to happen. And the labs have to address
this and this is a service we're offering to address it.
Suey Wong: Good. Thank you very much Gary.
Operator: Your next question comes from Frank Pinkerton with Bank of
America Securities.
(Jeff): Hi guys it's actually Jeff sitting in for Frank. I was
wondering if you guys could just touch on the uses of
cash flow going forward in particular share repurchase
targets?
Bill Jellison: Sure. You know, obviously one we've got a share repurchase
program that's out there to date. We've got about
three point two million shares available net of our stock
option exercising that we can purchase. Our first
primary use of cash is acquisitions and continues to be
acquisitions.
However I think that both based on the strong cash flow
that we have on an annual basis as well as our strong
overall balance sheet position you should absolutely be
expecting us to be doing, you know, both of those - both
acquisitions and share buyback moving forward here. And I
think that we will probably end up being more aggressive
on that buyback in the second quarter than were in the
first.
(Jeff): Okay thanks. And just to kind of follow up on the
acquisition environment as the last standing independent
large dental consumable manufacturer does Dentsply
consider itself to be at a disadvantage?
Gary Kunkle: Being large?
(Jeff): As - do you see yourself being at a disadvantage for not
having the endless balance sheet that some of these
other companies now have?
Gary Kunkle: Oh absolutely not. I don't know how we could ever draw
that conclusion (Jeff). I'm not certain there's anything
out there in dentistry we couldn't buy with our balance
sheet.
(Jeff): Okay. Thank you.
Operator: Your next question comes from Richard Tortoriello with
Standard and Poor's Equity Research.
Richard Tortoriello: Thank you. I have two questions - the first
regarding Asia and your strategy there. I wonder if you
could talk a little bit about your strategy, particular
over the next two years. Can you - do you believe you can
increase the percentage of sales from Asia significantly
over that time? Do you see acquisition opportunities in
any those markets? And also how do you compete cost
effectively in these lower cost of living local markets?
Gary Kunkle: That's a great question. First of all in Asia for
people who don't know we have 100% wholly owned
manufacturing facilities in both China and India. So on
the low cost products, at least the ones that we produce
there, we can certainly compete.
We have our own operations in virtually every major
country in Asia and Korea, Vietnam, Taiwan, Thailand, just
about - Philippines, Indonesia. And unlike our competitors
that import we have our people on the ground promoting
Dentsply only so that's the other advantage.
We've had double digit growth in this area for a number of
years. The only time it wasn't was during the SARS
epidemic and I think that really impacted everyone.
In terms of one of the strategies for growth I'll go back
to the importers. If you're using an importer most
importers want to keep everyone happy so they really don't
give any focus to any particular manufacturer they're
representing. Secondly during a down turn in the economy
which happens often in these markets you get a little
concerned about their ability to pay so you're a little
bit limited in growing during a downturn.
Since we have our own people and have no importers we
really do have an opportunity to gain share when markets
are down and we have done that. We think we're very well
suited to deal with the growth of the market and in fact
exceed it and we'll continue making investments in those
markets and make sure we capitalize on it.
Richard Tortoriello: Okay thank you. And then second question with
regard to the Danaher acquisition of Sybron can you just
comment a little bit on how or if that changes industry
dynamics at all?
Gary Kunkle: I'm not sure how much I can comment on that. I'll make
what comments I'm comfortable with. I don't think that
was a surprise to anyone. We have a tremendous respect for
Sybron and for Danaher. Danaher we know as everyone
knows is very strong operationally and it's something they
will bring to the table; we respect them. I think
the flip side of that is that we understand the customer.
We've got about 104 year edge on them and we know
customers in dentistry very well. We know the customers in
every category and we know them in every geography.
So while we still respect Sybron and we respect Danaher we
will - we're very comfortable in competing with them.
Richard Tortoriello: Okay great. Thank you.
Operator: Your next question comes from Anthony Ostrea with JMP
Securities.
Anthony Ostrea: Hi good morning guys. Was the 6.4% organic growth
that you broke in the quarter was that consistent with
your internal projection? And as such how did that change
your viewpoint of fitting about 6% of organic growth for
the year? I think that's what you guided to last quarter.
Gary Kunkle: The six point four wasn't too far off. How we delivered it
was a little different than we expected. We still
are targeting Anthony five to six and expect to be at the
upper end of that.
So in terms of six point four being above that original
target I'd still keep the target within the five to six
range and focus on the high end.
Anthony Ostrea: Got it. And then how much did the affect of business in
Germany actually grow in the quarter?
I know it was down 20% last year.
Gary Kunkle: It was - I think it was 13. But if I see that that's
different as we go through I'll get back on the call and
let you know.
Anthony Ostrea: Got it. And then can you - earlier you made
comments on focusing your efforts on I think it was ortho
and implants given you're seeing fairly robust growth
there. One can you quantify the growth in the quarter for
ortho and implants and two can you talk about your
strategies for actually - what does that mean when you're
putting more resources? Are you - earlier you indicated
possibly adding salespeople but are you adding more
products there?
Gary Kunkle: I can quantify it in a range. They were both double digit
globally.
Anthony Ostrea: Okay.
Gary Kunkle: And orthodontics clearly double digit is exceeding market.
I can also say the double digit in implants exceeds
the estimates of growth in the market.
In terms of new products I think for orthodontics I cited
too in my conference call was the In-Ovation L and the
other buccal tube. I did not talk about any in implants
but we have had them and of course implants once you
introduce a new product it has about three to five year -
even more than that growth. So yes there's plenty of new
products. I'm unwilling to talk about any we haven't
announced but there are more new products in the pipeline.
Bill Jellison: Also at our road show, you know, which obviously
everyone can access that online under our investor
relations section as well too - but that road show
presentation highlights a number of different product
slides there. One slide is just designated to implants and
shows a number of the new products that we have in that
category.
Anthony Ostrea: Got it. Thank you.
And then regarding your anesthetic products I know you
mentioned in your prepared comments that you're in
negotiations with potentially longer term suppliers. Can
you - are you foreseeing being able to close on those
contracts this year or would that be next year? What's the
timeline that we should be looking at?
Gary Kunkle: We expect it this year. In fact we really expect it
hopefully this quarter but at the least next quarter.
Back to your original question Anthony the growth in
Germany - base business growth was fourteen and a half.
Anthony Ostrea: Fourteen and a half. Okay thank you.
Operator: Your next question comes from Steven Postal with Lehman
Brothers.
Steven Postal: Thank you and thanks for all the detail. Can you talk
about maybe address what may have been behind the
increase in inventory days and DSOs?
Gary Kunkle: I'll make a comment and then if Bill has something
to add. You know, I mean obviously we like the steady
decline in inventories but this is not unusual if you look
at our trends. As we, you know, build inventories for new
product launches during the year that does require a build
of inventories to preempt those launches. So it's not
unusual to see some movement up in our inventories but the
ultimate objective that we have for the year being
realized in the fourth quarter.
Bill Jellison: I think that that's a fair statement. I think if
you look at kind of where we were at the end of the first
quarter last year you'll see that actually we're a little
bit below that level. Our first quarter is typically
always a build up period to a certain extent. And then we
work that down, especially in the third and fourth Q's.
But I think you'll probably also see some of the work down
already in the second quarter.
Steven Postal: Okay. And then I know the sales force
reorganization that you announced in the second half of
last year, the creation of Dentsply North America, could
you maybe give us some perspective on how you think that's
gone for the company?
Gary Kunkle: Steven it's a good question. I should point out
that while we announced it at the end of last year we
continued through the balance of 2005 with the old
organization, especially from a compensation standpoint.
And of course if you don't change compensation you're not
changing behavior very much.
So we're really looking at just the first quarter and you
don't see financial results from it. I can only tell you
that anecdotally the expectations that we had of how they
would work collectively and the interface they would have
in representing all of the distributor based companies to
dealers as opposed to us going there separately it is
operating exactly as we expected.
I think if you want to see some kind of financial benefit
from this it's going to take us easily a year or more.
Steven Postal: Okay. And then can you talk about the acquisition
environment in terms of opportunities for yourself? How
would you compare the opportunities now over say, you
know, the past few years?
Gary Kunkle: I don't think the opportunities have changed much.
As I have said in the past, you know, so many of the
companies that - well that we - many that we are targeting
so many of the companies in dentistry are private. So
while they may have an ultimate strategy of divestiture
their decisions and timing aren't so much based on value
but they're based on personal and family issues. So you
can't influence that too much.
You also have to have some willing sellers. If you look at
historically the biggest year that we ever had in
acquisitions was 2001 and coincidently the four companies
we bought happened to be sellers looking for a buyer as
opposed to what we would be doing being a buyer going out
looking for a seller.
So you have to have a little luck going your way too.
Steven Postal: Okay. And, you know, it looks like the US market
for you guys has been somewhat volatile in terms of the
reported growth rates over the past 12 to 18 months. I
know you addressed some of that in terms of some specific
issues but I guess I'm wondering if you could just, you
know, provide some perspective on what you've seen in the
US market and has there been any change in there in terms
of end user trends or demand for your products?
Gary Kunkle: That's a fair question Steven. I think as you look
at the volatility earlier on a few years ago it mainly
surrounded the lab business which, you know, hopefully
we've addressed some of that, at least for Dentsply with
some of our strategy of having a broader product offering.
We don't see too much volatility in the other businesses
and the way we measure it is not so much by what is
purchased at the dealer level but what they report of
sales of our products out to the dentist level.
And we see pretty steady growth there and so we're not too
concerned about that because we know that whatever
volatility you see in a particular quarter will eventually
smooth out as long as you have that demand at the end user
level.
Steven Postal: Okay. And final question from me just on Oraqix can you
just update us how you think that product is doing in
the market?
Gary Kunkle: Yeah where we're seeing most growth today is in
Europe which is a later introduction than it was in the
US. We still don't have it in every country in Europe but
we're very pleased to see the growth in France and Italy
which was introduced during last year and really hasn't
completed a full year cycle. But having said that I'd like
to see it grow faster in every market.
Steven Postal: Okay. Thanks a lot for the comments.
Operator: Once again ladies and gentlemen if you'd like to ask a
question please press star then the number 1 on your
telephone keypad now.
You do have a follow up question from Anthony Ostrea with
JMP Securities.
Anthony Ostrea: Hey guys I just had one follow up question. If you X out
the two items that you mentioned that affected your US
business what would have organic growth been?
Gary Kunkle: Yeah that's a great question. I really am
reluctant to give that for a couple of reasons. I isolated
those as two major contributors to the difference. But
please keep in mind that restoratives is one of 25 to 30
categories that we have of which probably 15 to 20 of
those go through distribution. So there's a lot of other
ins and outs that take place if you isolate it within a
quarter.
We clearly expect all those categories to have a growth
trend over time but it's unrealistic to expect that any
given quarter they're all going to be growing. So I
understand the interest in the question but I'm really
reluctant to give that number out.
Anthony Ostrea: Okay. Thanks.
Operator: Your next question is a follow up question from Steven
Postal with Lehman Brothers.
Steven Postal: Yeah I just had one quick follow up question.
Consolidation in distributors in Europe and I guess
consolidated distributors worldwide - in terms of the
impact on your business as they, you know, rationalize
their infrastructure, how should we think about that in
terms of the past and do you see anything on the horizon,
you know, that we should think about in terms of how that
would impact revenue trends?
Gary Kunkle: Are you looking at it from an inventory standpoint or just
a business standpoint Steven?
Steven Postal: Both.
Gary Kunkle: Well from an inventory standpoint as long as
there's not a huge consolidation of a large distributor in
a given period then you shouldn't see something in the
short term. Overall I mean we've seen a gradual inventory
reduction of our dealers in the US primarily and somewhat
secondarily in Europe. So I think it's gradual. I wouldn't
be too concerned about trying to track it.
From a business standpoint we're not too concerned about
it. In fact we may very well welcome the opportunity
because there's a lot of other services and benefits we
can offer large distributors because of our own critical
mass.
Steven Postal: Okay. Thank you.
Operator: Once again ladies and gentlemen to ask a question please
press star 1 on your telephone keypad now.
There are no further questions at this time.
Gary Kunkle: Okay. Thank you (Luann) and I'd like to thank you all for
participating on the call and thank you all for your
continued interest in our company.
Operator: This concludes today's conference call. You may now
disconnect.