Derek Leckow - Vice President, IR Bret Wise - Chairman and CEO Chris Clark - President and CFO Jim Mosch - Executive Vice President and COO.

Glen Santangelo - Credit Suisse John Kreger - William Blair Robert Jones - Goldman Sachs Brandon Couillard - Jefferies Steven Valiquette - UBS Steve Beuchaw - Morgan Stanley Erin Wilson - Bank of America Merrill Lynch Jeff Johnson - Robert Baird John Block - Stifel.

Good day and welcome to the DENTSPLY International First Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Derek Leckow, Vice President of Investor Relations. Sir, you may begin..

Thank you, Orlando. Good morning, everyone. Thank you for joining us to discuss DENTSPLY International’s first quarter 2015 results. I’m joined by Bret Wise, DENTSPLY’s Chairman and Chief Executive Officer, Chris Clark, our President and Chief Financial Officer, and Jim Mosch, our Executive Vice President and Chief Operating Officer.

I hope you had a chance to review our press release issued earlier this morning. A copy of the release and a set of supplemental slides and information relating to our non-GAAP financials are available for download in the investor relations section of our Web site www.dentsply.com under the heading Quarterly Results.

And please don’t forget the Safe Harbor language and U.S. GAAP reconciliation contained in today’s release also pertain to this conference call.

We may make forward-looking statements involving risks and uncertainties and these should be considered in conjunction with the risk factors and uncertainties that are described in the release and in our SEC filings. It is possible that actual results may differ materially from the forward-looking statements that we may make today.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. With that, I would now like to turn the call over to Bret Wise.

Bret?.

Thank you, Derek. Good morning, everyone. Thank you again for joining us on the call this morning. I have some opening comments and then I’ll turn the call over to Jim for some operational review and Chris will cover the financial results in more detail, and of course we’ll take your questions following our prepared remarks.

We’re off to a reasonable start to the year with revenue growth picking up nicely in the U.S. in the first quarter and adjusted EPS flat with the prior year. Results were slightly better than expected on earnings driven by growth in the U.S. and 100 basis point improvement in operating margins.

While growth in Europe was muted and FX rates deteriorated in the quarter after we last spoke to you in February. On markets we saw good increase in activity and demand in the U.S. as expected, consistent with the growth in employment over the past year. And at this point we would expect that to continue. Europe on the other hand was more mixed.

Overall I’d say it’s stable but differed substantially by country, some up and some down during the period. This is a bit weaker than we expected going into the quarter.

And rest of world markets as always were mixed but most were growing nicely with the exception of Japan, which as you know had a VAT tax increase April 1 last year which created some pull forward into the first quarter of last year and a difficult baseline for the first quarter this year. And of course that will reverse in the second quarter.

At DENTSPLY our strategy remains the same which is to focus on innovation to fund future growth while leaning out the organization, improving margins and asset utilizations and ROIC. And channeling funds to some key areas that can increase our impact on the market over the next several years. Jim and Chris will have more on that in a moment.

Looking at the first quarter, our revenue excluding precious metals declined by 8.4% for the quarter with constant currency and internal growth of positive 1.3%, while currency of course was negative 9.7%.

Internal growth was comprised of 4.5% growth in the US, a negative 1.2% in Europe and CIS and a positive 1.9% growth for the rest of world category. The U.S. growth rate was notably stronger than we’ve seen for some time, this was the best we’ve had in seven quarters and was driven by growth in essentially all principal product categories.

Results for some of the key dental shows in the U.S. earlier in the year were very positive and reflected both a market that’s growing in demand and also good interest in our portfolio.

We’re also pleased with our sales force execution in the US, both the direct businesses and those that go through our key distributor partners, and we view this as an area or an opportunity for reinvestment moving forward. In Europe we saw a sequential slow down from the stronger growth we reported in the back half of last year.

This market continues to be somewhat muted and it’s inconsistent across country markets. This quarter we saw lower growth in several markets including a continued decline in the CIS region.

We’re not reading too much into that at this point as overall I’d say the region appears stable to us, and we expect to see some small up and down periods before this market starts to grow consistently again.

Certainly the weaker currency and the stimulus now in place in Europe we think gives us a reasonable chance that this market will pick up over the next year or so. The biannual IDS trade show was held in March in Cologne which was well attended as always.

We saw strong interest in our products, although this tends to be more of an equipment driven show than a consumable show. Our results in Europe also reflect our transitional activities impacting our lab business.

As we’ve announced we are exiting certain equipment categories there that’s causing a temporary drag on results of sales of those product that are still in the baseline from prior year. Europe ex lab was essentially flat for us in the first quarter.

In rest of world we had 1.9% internal growth in total and roughly 5% internal growth without Japan where the VAT tax increase of course is distorting things for a couple quarters here. We continue to enjoy strong growth in the Pacific Rim.

Growth recovered substantially for us in Latin America, Canada was strong, while Australia and the Middle East were kind of flattish and Japan was negative as expected due to the tax. Adjusted EPS for the quarter was flat with last year at $0.59.

This reflects of course a currency headwind we’re facing which is quite substantial offset by improved margins and a slightly lower share count. Looking ahead at current rates, we continue to have -- we continue to expect that we’ll have the currency headwind for the balance of the year at this point.

But of course we’re focused on what we can do with our own operating model where we can improve our efficiency as well as invest for faster growth. That being said, we’re comfortable with our current guidance of $2.50 to $2.60 adjusted earnings per share for the full year.

That concludes my prepared remarks, I’d like to now turn the call over to Jim Mosch who has some comments on operations..

Thank you, Bret. I’d like to provide an operational update for Q1 and also provide some further perspectives on 2015 initiatives. I’ll then turn it over to Chris for the financial review. As outlined in February, we were looking forward to the International Dental Show in Cologne, Germany.

While the IDS tends to focus on large equipment, it is also an important show for the introduction of new products in the consumables area, and I’d like to outline some of our key launches. Our endodontic business launch WaveOne GOLD, which is an extension of our market-leading WaveOne reciprocating file system.

WaveOne GOLD utilizes a patented heat treatment process which improves file flexibility to negotiate difficult canal anatomy and also increase the safety due to higher resistance of cyclical fatigue. A second launch, a new cordless motor platform under the brand names X-Smart iQ and VDW.

CONNECT Drive has the ability to operate in both reciprocating and rotary modes. The new motor is connected to an iPad with an app-based interface that will provide an extensive and customizable filed library as well as a patient education module.

The platform is expandable, and in the future will incorporate apex locator capabilities as well as treatment planning. The restorative business continues their focus on procedural solutions to simplify restorative dentistry while providing effective patient results.

This included a series of our market-leading products in combination to effectively complete a class 2 restoration which is the highest volume restorative dental procedure. The same philosophy is also applied to a crown and bridge solution as it relates to preparation and final placement of the prosthetic treatment.

The procedure focus has also been extended to post endodontic treatment restorations, which we refer to as [RestoDonics]. This employs the use of our market-leading endodontic portfolio Palodent Plus Matrix system and our bulk-fill composite SDR. Our preventive business launch NUPRO White Varnish which has been successful the U.S.

market for over a year, but this was its initial launch into the European market. This IDS was the most comprehensive presentation of our preventive portfolio in the European market and we believe there are significant opportunities for geographic expansion and growth.

The prosthetic business presented their refocus to innovative all ceramic materials to be utilized in open platform digital systems. This was led by the launch of Cercon ht available in 16 vita shades as well as a special staining concept that supports small and medium-size labs.

In addition there was a re-emphasis of our CELTRA Duo, which is our chair side high-strength glass ceramic material targeted at the fast-growing all ceramic category. Most significant was that the prosthetics business presented a consolidated product platform that will be marketed and leveraged on a global basis versus more region specific brands.

Overall IDS attendance was up and we are pleased with the interest in our new product portfolio. Turning to operations, I’d like to outline the status of our initiatives to achieve a 20% operating margin by the end of 2017. As outlined previously, our European prosthetics group is engaging in restructuring discussions with our German Works Council.

This has resulted in the agreement to close one of the smaller facilities and the remaining restructuring is progressing. This effort is in alignment with the three manufacturing facilities and several field offices consolidated in 2014 and our focus to simplify our business model and leverage our asset base.

As we further address operating margin improvement, we have been refocusing and restructuring our global business model. This has resulted in the formation of three segments. Manufacturing businesses that primarily sell through our distribution partners, which reflect our dental consumables, endodontic and dental laboratory businesses.

Second, manufacturing business that sell direct to clinicians our patients which reflect our healthcare orthodontic and implant business. And finally, regional commercial organizations composed of our country selling stations in select developed and emerging markets.

Within the manufacturing segments we will focus on global product platforms by clinical discipline and create consolidated functional organization.

While this provides the opportunity to better leverage our asset base, more importantly it moves us from regionally focused businesses to global business strategies that we believe will drive long-term growth. In the regional commercial segment we are moving from independent businesses in country to fully integrated country organizations.

This structure allows us to leverage common commercial, clinical and customer strategies. As we move forward through this strategic initiative, there’s an amount of short-term distraction. However, this effort is necessary in order to achieve our operating improvement objectives and position our businesses more effectively to drive growth.

Closely aligned with our operating improvement objectives is a requirement for investments. As we look to growth, they fall in the categories of innovation, clinical education and sales excellence. Our investments in these areas focus us on expansion of R&D and investment in larger and no doubt riskier innovation projects but with higher returns.

In the area of clinical education we believe that we educate more clinicians than any other company in the dental industry. And we have implemented a DENTSPLY 360 program which leverages our clinical education programs across our businesses and clinical disciplines and delivers comprehensive clinical support and product utilization to clinicians.

This has been particularly effective with group practices and institutions. Finally, sales excellence seeks to support the largest employee population in DENTSPLY which is our field sales representatives.

We have invested in sophisticated tools as it relates to sales force alignment, deployment and sales analytics, which have improved sales effectiveness and execution. In addition to investing in sales representatives, we’re also investing in global sales training development to ensure consistent sales capacity and competency on a global basis.

We believe that the initiatives of strategic alignment, operating improvement and reinvestment will deliver long-term growth and results. I’d now like to turn it over to Chris Clark to review the financial results..

Thank you, Jim, and good morning, everyone. I’d like to provide some detail on our first-quarter results by reviewing key elements of our income statement, balance sheet and cash flow statement. As well as provide -- be providing some additional color on capital deployment and highlight some of the few key related initiatives.

For the first quarter, sales excluding precious metals declined 8.4% compared to prior year as internal growth of 130 basis points was more than fully offset by unfavorable currency translation of 970 basis points. The negative impact from currency on the top line with a bit larger than what we anticipated earlier in the quarter as the U.S.

dollar sequentially strengthened against most currencies as the quarter progressed, including a 2% strengthening against the euro on average from the rate we assumed at the time of our February earnings call.

Given the recent pullback of the dollar over the last week, based on current rates, the currency translation impact on our sales line for the full year is in line with the negative 800 basis points and we indicated on our call in February.

Net acquisition growth in the quarter was negligible as we completed a small acquisition in Q4 but also had three divestitures over the last year that offset it from a sales perspective.

Gross profit rate on an adjusted basis in the first quarter was 59.8% of sales excluding precious metals, which was an improvement of 200 basis points over prior year. This reflects the favorable impact of mix, FX and price. SG&A expenses on an adjusted basis were down 5.9% in the absolute reflecting the currency translation impact.

As a percentage of sales, excluding precious metals, SG&A expenses on an adjusted basis were 41.2% in the quarter, that’s up 110 basis points compared to our rate in the first quarter of 2014.

And this reflects incremental trade show costs, largely those associated with the biannual International Dental Show, as well as increased professional services costs including spending to support our global operating margin improvement initiatives.

Collectively these two areas contributed approximately 100 basis points to the quarter’s increased SG&A rate. Operating margin for the quarter improved by 100 basis points to 18.7% of sales excluding precious metals on an adjusted basis, and this compares to 17.7% in the first quarter last year.

This is on top of the 150 basis point improvement in adjusted operating margin in the first quarter of 2014 compared to the same period in 2013. Our performance this quarter reflects the gross margin and SG&A impacts that I just described as well as the impact of our operating margin improvement initiatives.

One area where we are continuing to gain momentum is our global procurement initiatives were we are focused on gaining the purchasing leverage from the collective spend across our global businesses as opposed to approaching the market as individual companies or divisions.

This is an area where we’ve invested considerably over the past year, adding both internal and external resources.

We’re pleased with the progress of our global team as targeted initiatives in the number of areas are delivering benefits including travel, office supplies, packaging, specific raw material components, temporary labor, OEM supply and others.

Our reported tax rate for the first quarter was 21.6% while our adjusted operating tax rate was 22.9%, which was 30 basis points above our first-quarter rate last year. We anticipated continued headwind in the adjusted operating tax rate as a result of our projected unfavorable geographic earnings mix in 2015 compared to prior year.

Net income attributable to DENTSPLY International on an as reported basis in the first quarter was $64 million or $0.45 per diluted share, and this compares to $72.9 million or $0.50 per diluted share in the first quarter of 2014. These results include a number of items which we’ve listed in the schedules in the release.

On an adjusted basis, net earnings $3.6 million in the quarter compared to $85.5 million in the prior-year quarter. Adjusted diluted earnings per share were $0.59 equal to last year’s first quarter including the headwinds from currency and IDS that I outlined earlier.

[Currency] represented a headwind to earnings in the quarter of approximately $0.035 per share, and this was a bit worse than what we anticipated coming into the quarter. This reflects the incremental strengthening dollar during the quarter that I mentioned earlier.

Moving on to cash flow, our operating cash flow for the quarter with $65.6 million and that’s up 2% from last year’s previous first-quarter record of $64.6 million, and is up 82% from $36.1 million in the first quarter of 2013. This was the fifth straight quarter with record cash flow for that calendar quarter.

Free cash flow for the quarter increased over prior year by $10 million, or 26%, and we continue to be pleased with our cash flow performance as our trailing 12-month operating cash flow was up 25% versus the previous 12 months ended March 2014.

In addition, our free cash flow conversion ratio over that period is 150% of reported GAAP net income while our free cash flow yield is 6.6%. Inventories finished 118 days in March, that’s up five days sequentially and down two days from prior year. We typically see a bit of an increase in inventory early in the year based on normal seasonal factors.

We anticipate continued year-on-year improvements in the inventory levels moving forward and our Management teams have specific targets relative to inventories and working capital. Accounts receivables were at 58 days in March, that’s up three days from December and down three days from 61 days last March.

Capital expenditures were $16 million in the quarter while depreciation was $19 million and amortization was $11 million. We’ve commented previously on the positive position our cash flow performance puts us in relative to capital deployment flexibility, and our first quarter demonstrates some of these benefits.

During the quarter we repurchased 1.7 million shares of stock at an average cost of $52.08 per share. In the quarter we returned $80 million to shareholders through share buybacks, net of option proceeds and dividends. Our leverage ratio defined as net debt divided by trailing 12 months EBITDA now stands at 2.1 at the end of March.

Looking forward, our balance sheet and cash flow generation continue to provide us considerable flexibility to deploy capital through acquisition and share buybacks.

As we look to the remainder of 2015, on the solid underlying operating margin and cash flow performance for the business in the first quarter and we’re confident our initiatives to improve efficiencies are gaining traction. We commented on our call in February that the year-on-year comparisons would be significantly impacted by the much stronger U.S.

dollar compared to 2014. And as I mentioned, due to rate changes within the quarter, the headwinds we experience in the first quarter were a bit larger than anticipated both on the top and bottom lines. Rates have come back to us a bit with the weakening of the U.S. dollar over the past week.

And based on current rates we would project the full-year currency headwind to earnings to be about $0.14 per share net of our cash flow hedges, and that’s consistent with what we indicated on our call in February. As you may recall, these hedges helped to partially blend our FX impact over a rolling 18-month period.

And while they don’t eliminate or reduce the long-term impact of currency changes, they do reduce the volatility by essentially gradualizing those rate changes. Absent the cash flow hedges, the negative impact to earnings per share from currency would be approximately double the $0.14 that I just mentioned.

As I mentioned in February, one of the longer term benefits of our operating margin improvement initiative is to standardize production processes across similar facilities which should allow us over time to flex a portion of our production between plants or geographies based on a range of factors including currency movements.

We also have worked to offset a portion of the currency headwind through targeted pricing and cost initiatives in the short term.

As Jim mentioned as part of our operating improvement initiative, we are aligning our businesses based on business type, manufacturing businesses that sell predominately through distribution, manufacturing businesses that sell -- that primarily sell directly to end users and finally geographic selling locations.

And you will see that our segment reporting in our first quarter Form 10-Q and subsequent filings will reflect this alignment. Finally as Bret indicated, we’re maintaining our 2015 earnings per share guidance at $2.50 to $2.60 on an adjusted basis.

That completes our prepared remarks, we certainly appreciate your support and we’d be glad now to take any questions that you might have..

[Operator Instructions]. Glen Santangelo, Credit Suisse..

Good morning. Just wanted to follow up on the revenue growth numbers.

I think the problems in Europe to be pretty well documented the can you just comment on the rest of the world category in terms of what you’re seeing there because it seems like the growth has obviously decelerated a little bit, and I think everyone is we’re the issues in Japan and the tax issue but maybe above and beyond that could you maybe just give us some commentary in terms of the outlook in some of the key markets there?.

Sure. I would like to remind everybody that are rest of world category includes a mix of emerging markets and developed markets. So for instance, Japan, Canada and Australia are included in that category. Those markets are acting like developed markets at this point. The Canadian market is going pretty nicely for us.

I think that’s there some type to the United States they are not a direct tie but we see the outlook they are being favorable at this point. The Australian market is flat. I think that’s consistent with some of the economic growth the issues they have. There were some articles recently about perhaps they need to cut interest rates there.

The currency is already quite week, and that raises of course the cost of doing business and Australia because it’s an important economy for product like ours. So I don’t see a substantial uptick there one way or another.

Japan is United act like a developed market a contract in the first quarter of the goodwill expanding the second quarter maybe when the third quarter because the low baseline, but long-term Japan is a low growth stable market. The rest of world category for us is of course emerging markets.

We continue to see good growth and expect to see good growth in the Pacific Rim including China which is continues to be a robust market. But also some of the other countries in that category as well. Latin America has been hot and cold.

And I grown pretty consistently for us kind of coming up to the second quarter last year when the World Cup was in Brazil, but then had a couple of slow quarters the growth this period recovered.

Our hope is that is now on a more stable basis and will continue to grow maybe not as fast as it was two or three years ago but growth on a more stable basis going forward. The currency there is a big factor as well because of the depreciation of the real. So it’s hard to describe rest of world at one comment. It’s a complex group of countries for us.

But I think it’s important to keep in mind it’s a mix of both developed and developing markets..

Thanks for the comment. Maybe just ask a follow-up question.

It seems like on a more encouraging basis the margins and cash flows continue to improve and as the leverage comes down, can you maybe just give us some of your updated thoughts in terms of the capital deployment outlook? It seems like obviously the company bought back some stock this quarter, but maybe if you look at your M&A pipeline, how does that stack up versus the attractiveness of buyback your own stock and how should we think about that lacks..

Sure. First of all, I would reiterate what we’ve said earlier, and that is that we are very focused on cash flow generation. You’ve seen that come up in the company as well as with margins asset turns are improving. ROI has improved pretty substantially over the past three or four years.

We think we’re in a good position now to produce quite a bit of cash, and that will be -- the first priority for that of course is reinvesting in the company where we get a really good pay back on capital investment internally to grow both sales and earnings. Second priority continues to be acquisitions. We are looking in acquisitions.

We do have several candidates in the pipeline. We’re in active discussions with several companies. They are, of course, we are looking to get a reasonable return in ROIC over a period of time. As a top priority for external spend I expect that to continue to be a reasonable part of the balance on capital deployment.

The third priority, of courses, returning cash to shareholders. What we’ve said is that we are going to neutralize the equity program and then some. You’ve seen us do that over the last several quarters. We’ve brought the share count somewhat. And I would be surprised by the way to see some further deleveraging at some point.

We don’t have deleveraging is kind of in event driven at this point debt instruments which are but I would think of it in a couple of years you will see some further deleveraging as well. So that’s kind of the order priorities at this point..

John Kreger, William Blair..

Bret, can you just talk a little bit about what you’re seeing in some of the key specialty markets? Are you seeing any left for example in the orthodontic market? And I think in the past you’ve talked about the pricing pressure there, curious if you’ve seen any change..

Sure. First of all, specialty markets for us are comprised of endo, ortho, and implant. The endo market continues to perform quite well for us. That’s a product that’s sold primarily through distribution, but in a couple of select countries, sold direct.

That’s market also where we have brought out quite a bit of innovation, and we’ve got a strong innovation pipeline going forward. So I expect that to continue to be a growth market for us. Implant is a bit of a mix bag. As I commented earlier, it’s growing nicely in the U.S. It’s not growing in Europe at this point.

We’ve got a new implant on the market that’s gaining a lot of attention. We view that as an upside opportunity for us. The orthodontic market is one that is been in a state of change for the last couple of years. There’s been a lot of price pressure in that market. There continues to be a reasonable amount of price pressure.

We’ve seen some improvement in select country markets over the last year or so. We might be reaching an inflection point I think in that market where it could improve for us. Right now, it’s a pretty good market for us in the U.S., more of a mix market overseas. Jim, I don’t know.

Do you have anything to add on ontho?.

Yes, from our standpoint what we’ve seen in the ortho market overall is that case starts globally appear to be flat. And that would indicate that they are slightly negative in the U.S. and Europe and growing in the rest of the world. So the market overall is not significantly robust.

As has been mentioned, the average sale price pressure that we’ve seen over the last couple of years has continued. We were pleased we saw better performance in North America in the first quarter. So we are starting to see some movement. We’re certainly being more aggressive in the marketplace, and we are looking to gain share..

That’s helpful; thanks. And then, Jim, maybe if you could expand a little bit more in these new three reportable segments. What sort of operational changes are you making beyond just the different way that you are reporting them to us? And I think you mentioned some short-term distractions.

Can you just elaborate on that?.

Certainly. I guess what I would say, there’s two key strategic elements here. One is to say that our ability to focus our businesses more globally. So we would have -- in the past we would have specific businesses within the endodontic area, for example.

They certainly would have a global approach, and they would work on certainly, common programs R&D operational initiatives. But they also had really very much a geographic focus. And we would see that our groups were aligned in such a way that they would have focused on a given discipline in dentistry as well as geographic responsibilities.

What we’ve done is we’ve really streamlined that, and we’ve sought to create segments of like businesses that focus on a given segment of customers.

Within these businesses, we’ve sought to streamline their management structure and also to make -- create a strategy of global product portfolios where as opposed to looking at more regionally focused brands, we truly look globally category by category and align our brands in that fashion.

We think that this approach is going to certainly create some efficiencies, but also give us a much more effective approach, a more strategic approach to the global market. In our country organizations, I think the second thing that I mentioned was that we would look -- historically we had several different divisions operating within a country.

We have sought to create really truly DENTSPLY country locations in which they all operate with a common strategy, they leverage resources, and they focus on common customers. And we believe that there are a lot of efficiencies and certainly effectiveness in the market associated with doing that.

The distraction piece I would say, it really comes from the standpoint that as you create -- as you realign the business strategically, as you create these efficiencies in the market place, there are changes that are occurring. There are changes in roles and responsibilities and people.

You tend to see some efficiencies initially in the form of synergies call you sort we have seen some of that in our result of some of the restructuring that we’ve taken. But the longer-term effectiveness of the marketplace does take some time as people were new roles and new strategy..

Great, and then one last one. The U.S. growth was really strong. Curious if you think that type of growth is sustainable throughout the rest of the year..

Well, I think we’ve seen some pretty strong reports from our competitors and some of our distribution partners thus far about the U.S. market. Of course we’ve said before that the U.S. market is driven primarily by job growth, in particular white-collar job growth.

We’ve seen some pretty good improvements in that over last several quarters, four or five quarters. And dentistry is a lagging indicator. So typically, we pick up a couple of quarters after the labor market picks up.

So there’s been some bumpy economic news in the last few weeks, but over the -- longer let’s call it four or five quarters, it is been strong. And as long as that continues, I think you will continue to see U.S. dental market perform pretty well..

Robert Jones, Goldman Sachs..

Hi this is Nathan Rich on this quarter. Wanted to go back to the operating margin performance. Chris, you mentioned the number of moving pieces in your prepared remarks in terms of what drove the margin expansion.

But just wanted to ask if you are able to give us a sense of how much the efficiency initiatives made contributed to operating margin in the quarter if you try to isolate that impact..

Yes it contributed in the neighborhood of 4250 in terms of the improvements so we are getting a sizable help cover that. As I mentioned ideas and trade show cause obviously with the other way in the quarter.

But again, overall we are seeing some nice lift, and you can look back historically at this type of internal sales growth level, we would struggle to get operating margin lifted at that sales level.

So from that angle again I think we’re pleased with the traction, and again, on a number of fronts including the purchasing procurement initiative as I mentioned. but again, I think we are making real solid progress..

Great. I think on last quarter’s call, you guys had talked about initially expecting the first quarter to be the most challenging from a margin perspective, so just wanted to get your updated thoughts on margin progression for the rest of the year..

Yes as we look to last year baseline we had a significant increase 13%, 40% in terms of earnings in the quarter. We knew we were coming up against that. We also -- as we look at FX, FX we anticipate maybe $0.14 for the year.

Maybe a little less than fair share in the quarter was what we anticipated, came in pretty much in line with basically straight-line quarter. But we also knew we had the IDS cost. So from that angle, we thought that it was going to be a little bit more challenging, in terms of the earnings side.

We’re pleased, obviously, with the underlying performance. As we move forward, there’s a number of factors still at play. I mean, we’ve got -- I think that we are pleased and terms of the traction, as I mentioned, on the efficiency program. FX still remains a wild card. Certainly the U.S.

growth is a - the healthcare and assuming that continues, that’s helpful. Europe is a bit of a wild card as well. So again, I think we’ve got some puts and takes, but as Bret mentioned, that’s why we’re comfortable with the range that we have..

Brandon Couillard, Jefferies..

Bret, back on Europe, could you break out the growth [ex Russia in] CIS? And broadly, do you still think you’re taking share in the broader European market?.

The growth ex CIS was still slightly negative for the quarter, and that was driven by lab. Without the lab, we would’ve been -- the rest of the businesses in aggregate were going. I don’t have a specific number with that, but it’s -- it was one it was minus 1.2 with CIS so it would be....

Zero point nine..

Do I think we’re taking share there? I think we are, although the data we get out of Europe is not as good as the data we get out the U.S. I have to kind of triangulate the reports from distributors as well as other direct businesses that report.

And in total, I would say we are still a little bit better off than the competition in the European market. Again, we don’t -- even though it slightly negative this quarter, we don’t see that as a new trend.

We think that that market’s going to come back for a number of reasons, and we are quite positive on our ability to grow in that market over the next year or so..

Thanks. You elaborated a little bit more on the some of the moves you’ve taken recently terms of procedural selling efforts.

Can you give us an update on exactly where you are terms of rolling out those types of programs? And is that something you think can be noticeably accretive to the top line?.

This is Jim Mosch. Yes, we’ve - our [restored] group has probably led the way in this area, probably followed by endodontic businesses. This procedural selling approach has been very, very well received. We rolled out the class 2 globally. We have started the crown and bridge procedure, and the [RestoDonics] primarily in Europe and U.S.

at this point in time -- excuse me, crown and bridges is in Europe and U.S., and [RestoDonics] is in Europe. And we seek to create more these programs. They probably do a couple of different things for us. One is they group our products in a logical sense in the way clinicians use them and how they understand to be used.

They also make it very understandable for our field organization as they represent a position these products. And so, we found it to be very, very effective in the marketplace.

It also helps us -- which we talked about some of our strategic initiatives, it also helps us to build bridges between our various businesses products like endodontics and restoration, lab and restorative. So we see that we will continue to work on these procedural programs and roll them globally, and they are definitely having an impact.

We see substantial growth in the products that are in these procedural selling programs..

Steven Valiquette, UBS..

Thanks. Good morning. For my point of view, obviously I still think the U.S. growth was phenomenal acceleration. Somebody asked about a little more color there. I guess I have a few questions I to that as well.

Just wanted to confirm, I’m guessing that still overwhelmingly driven by volume increases or I’m curious to know if there was any sort of price or mix component that was affecting that? And then also, I guess it was in crystal-clear, but just to clarify maybe just sort of how much implant growth may have drove some of that acceleration versus a basket of other products outside of implants?.

Okay, Steve, I will take a shot at some of this, and Chris will probably fill in some of the blanks year as well. Implant growth did not influence the number one way or another significantly in the quarter. So it was a broad basket of improvement across many product categories that we had. I think that the growth in the U.S.

is, in part, volume at this point. Price mix probably plays a role as well.

I’m going to ask Chris if he can - can you comment on?.

Yes, from a price standpoint, we think prices in line with what traditional price would be, typically in the 1.5 range, we believe in the U.S. year on year. And that’s associated with the price increases we took last October..

Steve Beuchaw, Morgan Stanley..

Thanks for taking the questions. Just a couple of fine points. First for Chris, it’s clearly a strong story here in terms of the free cash flow growth.

But given how many moving parts there are, I wonder if you could speak to the sustainability of the free cash flow growth over the balance of the year? Or would you be willing to provide or update a figure on where you think cash flow -- free cash flow, rather, could come out for the full year?.

Yes, we don’t guide on that specifically, but what I would say is that, again, we’ve been helped over the last five, six quarters really with improvements in networking capital. We have a strong focus there.

But sometimes that’s an actual improvement sequentially in terms of working capital coming down, and in some cases, like in the first quarter, it actually came up a little bit as we had some seasonality typically where we do bring inventories up a little bit in the first quarter and the first half of the year, and then they come down - tend to come down in the second half of the year.

But they did not increase much as they did in the prior year. So again, we have a very strong focus on networking capital. All of our business leaders have specific targets and objectives based on these. It’s an element of the senior executive compensation plan as well.

So again, I think that that’s certainly driving focus, and I would anticipate that continuing to help.

I would say the reason why it may not be 100% sequential as we think about structural changes or anything in terms of changing any operational specifically regarding facilities, we would typically build some inventory -- transitional inventory in between.

So you may see from time to time over the next several years some transitional inventory there and as well, obviously, again the underlying demand coming through. I would say from a CapEx perspective in the first quarter related to free cash flow, first quarter was [phasing wise] a little bit lower than what would expect.

I would still guide neighborhood of $100 million for the year. But again, obviously as we look, we would anticipate continued improvements generally in terms of overall free cash flow over a longer period of time..

Much appreciated. And then a question on implants. I’m not sure this is better for Bret or for Jim, but I wonder if you could talk about your experience over the last 12 months or so with EV on the market, specifically with regard to market share.

Now that you have the product line out there, the sales force ramped up, maybe not in all regions, but in certain regions, how do you think about your competitive positioning relative to EV? Is this what you need to continue to hold a gain share in the market? And maybe this is more for Bret -- and how you thinking given that experience about the potential for broadening the bag in implants? Thanks..

I will handle the first question. The EV launch continues to go well. I think as we’ve outlined in the past, I think the system was very much designed for clinicians. It offers a lot of simplicity and effectiveness in the implant procedure and really identifying, taking out steps, making it to be very easy to use system.

As we referenced last year, the - we launched that later in a couple of major markets really being the U.S. and Germany. We really got going into Q3 of last year, and as a result, we expect to see continued growth in those regions. Conversion rates are very good.

And I think as I referenced last time, we are seeing that are our EV conversion is up around 50% and growing rapidly.

So we’re pleased with how EV is positioned, and we believe that while we really efficiently launched this in March of last year, we think that the launch has a lot of legs left and that we are going to continue to see penetration throughout the rest of the year.

I would also say that we continue to launch in the biomaterials area, which we did at IDS, we continue to expand our digital portfolio, which we also did at IDS with the new [simplant17], new 3D editor for Atlantis system, a new Atlantis platforms. So EV is a big part of the story, but it is also a portfolio approach that will move us forward..

I will comment on the broadening the bag question. Jim described that in the bag we have today, we have premium implants and basically all the support services that are needed to help a clinician be efficient in the implant placement.

I assume by broadening the bag, you’re talking about either mid range or value-priced implants versus a premium category. We continue to participate in the value range through our investment, minority investment in the South Korean implant company. We are monitoring that - the market in total closely. It has become a reasonably large market.

As we evaluate companies in that category, we find a lot of that aren’t making money. We find a few that are. So we’re looking for the magic sauce there, and we have not decided to make a move in that category at this date..

Erin Wilson, Bank of America Merrill Lynch..

Thanks for taking my questions. Sorry if I missed this, but at the distributor level was there any meaningful distributor inventory restocking, destocking, and in particular the U.S.

as well?.

No, what we saw in - Erin, it’s Chris. What we saw in the quarter was pretty consistent with what we saw in general in aggregate last year in the first quarter. So maybe some changes on an individual business plus or minus, but one exception to that obviously is Japan where again there is significant stocking in the prior year base..

Okay, great.

And then given the strong cash flow characteristics year and you mentioned M&A is one that top priorities, but what is been the hold up on M&A activity? Or are valuations just egregiously high right now? Or is it just patients around finding the right asses? Or can you elaborate what you’re seeing out there?.

I think valuations are little bit frothy at this point. However, for the right asset, we would probably pay up. I think it’s more finding the transactions which are executable now, fit our strategy, and also deliver the financial matrix that we want. I would say we’re reasonably selective at this point.

There have been some assets that come into market that we passed on, just because they didn’t fit those criteria for us..

Okay. Great. And then after we think about contributions from the launches at IDS over the course of the year, should we expect this to be similar to previous years? Or is anything expedited or delayed, or anything like that would be helpful..

Yes, Erin, I think when we look at the IDS, we tend to see maybe a little bit of a bump in the quarter after. But I would say generally the profile of launches - IDS seems to have an impact on Germany and Europe. Rest of world launches come later.

We have a good portfolio of launches throughout the balance of the year, and I would expect that to be fairly consistent year on year..

Jeff Johnson, Robert Baird..

Thank you good morning guys. Just wanted to check in one more question on the margin side. It looks like currency may be helped by about 50 basis points this quarter of the operating line.

Chris, can you confirm that? And then if that’s true, if margins are kind of being rebased 50 basis points higher or so due to currency, is there a chance that 20% guidance for 2017 has some upward bias to it? It looks like to me this year you’re already going to be north of 19% with the currency help there.

So it would seem to me there might be some upward bias of that 20% goal, but I would like to hear your opinion on that..

Yes, Jeff, there is no doubt that currency is having an impact on the operating margin. I think that obviously we gave you the impact on the top line right now. That impact on the top line is larger than the impact on the bottom line. And that obviously, by definition, driving operating margin improvement if you will from FX.

Some of that is -- a good chunk of that is becoming basically is resulted in cash flow hedges that, as we indicated, mitigate in the near term the full impact of FX coming through the PNL. So FX I would anticipate being a -- I think we commented on this in February -- being a tailwind, if you will, right now to the operating margin improvement.

But turnaround -- if these rates stay where they, turnaround will be a headwind basically as the hedges basically expire and then are replaced of hedges at the same rate, which would not have any impact. So again, I think you’re correct in terms of identifying FX certainly helping us right out.

We called it out, but again, I think beyond that, the FX will swing around and be a hit to operating margin at some point if rates as they were they are..

Okay, that’s helpful. And then just too little modeling questions. Equity and affiliates looks like it was a bigger loss than we had seen really in your history. Can you walk us through maybe that and the net interest with a little higher as well.

And I’m assuming that has to do with hedging, but maybe any clarity there would be helpful for modeling purposes..

Sure, so the equity piece comes from our estimate in the South Korean implant manufacturer. We have an ownership stake in that a minority stake as well as some convertible bonds with that.

And so as such, as their stock price increases, the market value change in the convertible bond drops as the fair value of the liability of the bond increases on their books. So we then have to take basically our percent ownership of that drop, and that’s what you see coming through.

So we had a pretty significant ramp-up, if you will, in their stock price in the quarter, and as such when that happens than that the bigger loss coming through for us. And again, that’s move from our non-GAAP results because of the fair market value adjustment. In terms of interest and other, several things going on there.

In terms of the non-GAAP basis, basically which removes again the market-to-market impact. Basically net interest, we got help in terms of lower debt levels, but that’s offset by lower interest income from derivatives. And again, what you see actually on a non-GAAP basis about $1 million year-on-year improvement combined between interest and other.

And that’s really mainly at this stage coming through the other income expense line, which is favorable pick up on FX gain and loss in the quarter..

And now we’ll hear from John Block with Stifel..

Thanks, guys, good morning. Appreciate you taking the questions. First question on Europe, if I look at European growth [ex CIS], it seems like a step down from roughly 3.8% last quarter and 4Q, I think you mentioned -0.9% in 1Q 2015. It doesn’t look like it’s a comp issue, so just curious any additional thoughts on Europe.

It does it feel like a pretty big step down? And again, one of your main competitors cited European weakness, but they seem to imply the weakness was maybe a little bit more temporary in nature.

So can you just touch on what you’re seeing there and our confidence on restaging growth in Europe this year despite the comps getting more difficult?.

Yes. I’ll take a stab at this, and then Chris can comment if he is anything to add. We have seen the European market move around a quite a bit. It’s not really one market. There’s seven or eight key country markets in there. I would say for the last two quarters of ‘14, we saw a more consistent uptick across all those markets.

In the first quarter we saw more of a mix. So we saw some slowing in several country markets, and we saw continued growth in several markets. As we talk to our people on the ground in those markets, they don’t believe that it’s a long-term negative trends.

They think it is just the markets pausing for a bit, and they expect those recovering to improve as we move through this year. I don’t have a lot more data than that other than the feedback we get from our people that are closest to the market.

Chris, do you have anything to add to that?.

Yes, I might add - I think we said in last couple of quarters as well when asked about Europe that it was tough to tell how much was us and how much was market. And again, I think what we try to indicate you was that we weren’t is confident that the underlying market was moving at that same rate is what we were.

And again, I think that obviously in the fourth quarter - in the first quarter here we do believe the markets are a little bit more tempered in line with Bret’s comments.

The other piece I guess I would say for us there is no doubt that the changes we are making on the lab business are probably incrementally more of a distraction as we move through this.

The distraction, if you will, certainly from an organizational perspective, but as well, I mean, we’ve announced the discontinuation, the intended discontinuation of some product lines, and that’s going to carry with it a headwind as well.

So we’ve got a few things I think a little bit more temporal terms of unique to us, particularly in the lab side, that probably are taking in a little bit factor right now. Obviously, we’re doing the -- pursuing this action to improve that business moving forward, and we still confident in that trajectory..

Okay, great. And maybe just one more for me -- some other ones were previously answered. But you mentioned the implant strength in the U.S. and that was aided by EV. Any changes in the mix you’re seeing in the industry between specialist and GPs? And obviously [stawmen], they’re out there with their efforts with one of the big distributors.

And just curious to know that there might be six or some months into that initiative, your thoughts if you need to augment your selling efforts more specific to the GP channel. Thanks guys..

Certainly, I will take that one. John, I guess what I would say is that when we look at that strategy, obviously there are GPs that are placing implants. We have GPs that are placing implants. And that’s a phenomenon that you very much see in the U.S. market piece because you clearly have a specialist general practitioner delineation.

When you go outside in other markets, obviously you have all types of individuals placing implants. So that strategy maybe is a little bit muted. At this point in time, we can’t see that we’ve seen major movements as it relates to GPs placing implants.

As we see the North American market today, still the majority of implants are placed by specialists, oral surgeons, [peridontists], prosthodontics. And I think that is -- we believe that trend will continue.

Certainly, that strategy can bear fruit, but it would take a very significant move to see it, is I guess is what I would say just because of the predominance. We estimate that roughly 90% of implants are placed by specialists today. So that can kind of give you an idea of the magnitude of change that you would need in order to really see that impact.

At this point in time, we work very actively with GPs on a restorative side. We have obviously a good digital portfolio which supports that as well. From our standpoint, general practitioners have a very positive financial situation in doing the restoration on implants, and we continue to work very, very hard to support that end of the business.

If they have a desire to place, we support them on that as well..

There are no additional questions. I will turn the call’s back over to Derek Leckow for any additional or closing remarks..

Okay, thank you all very much for your interest in DENTSPLY. That concludes our conference call. If you have other questions, I’m available for follow-up. Thank you. Bye..

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation..