Bret Wise - Chairman and CEO Chris Clark - President and CFO Jim Mosch – EVP and COO Derek Leckow - VP, IR.

Nathan Rich - Goldman Sachs Steve Beuchaw - Morgan Stanley Brandon Couillard – Jefferies Ethan Roth - Stifel Nicolaus Matt Pfau - William Blair Jeff Johnson - Robert W. Baird.

Good day and welcome to the DENTSPLY International Second 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, Erin. Good morning, everyone. Thank you for joining us to discuss DENTSPLY International’s second 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 the non-GAAP financials are available for download in the investor relations section of our website 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.

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 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 here on our second quarter call. Overall we were very pleased with how things developed in the second quarter. Certainly we believe the markets are showing some signs of improvement, while our own results accelerated nicely both on the topline and on the bottom-line.

Before we get into specifics about our performance, I’d like to provide some brief comments about the regional markets. From our perspective, the US remains quite healthy, stable and growing and given the job growth numbers, we expect that to continue. In Europe, we also saw a notable improvement in demand sequentially.

This was most notable in the southern countries, but also in the UK and the Nordics. Russia on the other hand continues to be a difficult market. In the rest of world, I’d say there was more good news than bad. We saw the markets demonstrating good stable growth in the Pacific Rim, the Middle East, as well as in Japan and Australia.

At DENTSPLY, as you know, we’ve been focused on how to become more efficient internally, while channeling funds back into initiatives that can drive sustainable growth above the market irrespective of the market conditions. And in that regard we made some important strategic and operational changes that Jim will update you on in his remarks.

Thus far, the program is going very well, but our reinvestments have been limited and part to the extent we’ve had reinvestments, those have been focused on actually funding the efficiency initiatives.

But in certain cases where we’ve channeled some seed money for growth back into the business, we’re getting good results, nice results and we are now entering a period where we expect to be able to generate additional savings that will allow us to begin to accelerate these investments and growth on a go- forward basis.

Moving to our specific results for the quarter, overall internal growth came in at a positive 3.6%. That was led by the rest of world, which was up 7.9%, followed by the US, which was up 3.3% and Europe was a positive 1.9%.

The rest of world numbers are quite good and reflect solid internal growth across most of the regions that are included in this total for us. Japan recovered nicely in this quarter as expected given the low base from last year’s Q2 and as you recall, that followed a VAT tax increase April 1, 2014.

So there was a movement in 2014 of sales into the first quarter and now the second quarter. So the baseline for this year was rather low. However, even though Japan was strong by comparison, it was up mid-single digits, it was still slightly dilutive to the rest of world number we have here.

So the 7.9% number we have for the rest of world is not really bolstered by the Japan number. In US, we saw a solid demand across most of our businesses, which with the exception of lab that was down slightly. Recall that we are discontinuing some products in the lab business, which is muting the reported growth for now.

In Europe, we were up 1.9% and that’s despite a continued drag from the CIS region. Ex-CIS we were up 3.1%. This reflects really nice growth in consumables and the specialty categories, while lab again was negative for the same reason it was in the US. It’s reflecting those discontinued products.

From an execution perspective, we are pleased with the organic growth in the topline as noted and despite the significant drag from currency; we’ve done pretty well bringing the earnings through the income statement. On an adjusted basis, we delivered 180 basis points of operating margins expansion to get to 21.1% for the quarter.

That’s our best performance in five plus years. EPS was up, our adjusted EPS was up 6% in the quarter and that’s despite a significant drag from currency. So overall we feel good about the results and also good about the outlook. One other thing I want to comment on was the restructuring charge we took this quarter.

As you know we announced this was coming back in May when we resolved the negotiations with the Works Council in Germany and we’ll now begin to implement this program in the third quarter.

To date, there has been a drag on our performance from this program due to the discontinued products, which I’ve mentioned here, but also because of the uncertainty of what the outcome would look like.

Moving into the back half of the year, we should begin to see the benefits, including more efficiency, but also more focus, more clarity on which products are important to the future of this business.

Also, given our performance to date and the benefits we now see in the back half, we are in good position to begin to accelerate our growth investments while also reaching our margin and earnings goals.

We are keeping a close eye on risk from this program of course, because there is the potential for disruption, but we are pleased to date that that disruption has been minimal and we’ve been able to manage through it.

We expect to see more benefits from putting our shoulder more firmly behind the growth projects in the program and we believe that can begin to be impactful as we move into next year.

So based on our earnings to date, the markets developments as we see them and the outlook for the net benefits coming from the efficiency program, we’re adjusting our guidance range from the 250 to 260 that we established at the beginning of the year to a new range of adjusted earnings per share for the year of 254 to 262.

This reflects our confidence in our performance so far in the initiatives we have under way and also the currency drag that we expect based on the rates today and of course also the other points I’ve noted this morning. I’d like to now turn the call over to Jim Mosch.

Jim?.

Thank you, Bret. I’d like to provide an operational update for Q2 and also provide some further perspective on 2015 initiatives. I’ll then turn it over to Chris for the financial review. As Bret noted, we saw good performance across all regions in Q2.

Providing some perspective to this, our global consumables business delivered solid mid-single digit internal growth in the quarter.

New products launched in the latter part of 2014 and Q1 of 2015 in both the restorative and preventive areas are driving growth, coupled with procedural selling efforts in the areas of class two and post endodontic restorations. In addition, US retail growth appears to be stable and growing well versus prior year.

Our dental specialties business also performed well with mid-single digit internal growth, led by our endodontic and implant businesses. Endodontic businesses have benefited from recently launched products such as WaveOne GOLD, ProTaper Next NiTi Files and new irrigation and root canal filling products.

The implant business continues to get strong traction from our new implant system ASTRA TECH EV, SYMBIOS Biphasic Bone Graft Material and additional implant platforms in our ATLANTIS customized abutment business. The prosthetics business was down mid-single digits on a global basis.

This was driven by challenging market conditions in traditional lab products and discontinued products as a result of the restructuring of our European lab business. From a geographic perspective, we saw upper mid-single digit growth in rest of world, driven by Asia and Latin America.

These regions certainly benefit from new products across all businesses, but in addition we have worked to stabilize these businesses, ensure dealer compliance and invested to strengthen the management teams, as well as expand the selling organizations.

From a new product perspective, we highlighted the products we launched at IDS, WaveOne GOLD, endodontic files, the VDW Connect and X-Smart iQ, which is an iPad based endomotor and the Cercon ht Shaded Zirconia milling disk. We saw impact from these products in Q2.

However, some of these products such as the new endomotors will begin the formal launch and shipments in Q3 and we expect improved momentum throughout the year. In addition we have a strong new product pipeline and we’ll have new product launches across most of our businesses in the latter part of Q3 and Q4.

In the Q1 analyst call, we introduced the formation of three segments. The formation of these segments and more specifically the creation of global businesses, global product platforms and single country operating units, are part of our global efficiency and investment initiative.

Our stated objective is to achieve a 20% adjusted operating margin for the full year of 2017 while providing estimates to support the growth of the business for the long term. In Q2, we crossed the 20% threshold at 21.1%. Please note that Q2 tends to be our seasonally largest and most profitable quarter.

However, we are beginning to see the results from elements of our global efficiency initiative, including the procurement program which Chris will address. In addition we are proceeding with restructurings of our European lab business as well as other restructurings related to country and global business formation process.

This process will accelerate as we close 2015 and throughout 2016. We are confident that these are realizable expense improvements and as we effectively align the businesses and create operational efficiency. As indicated, an important element of this initiative is investment. To date, most of our spending has been utilized to create efficiencies.

We now shift our focus to investments for long-term growth. We are planning increasing levels in investment over the coming quarters in areas of in-field marketing resources, salesforce expansion and expansion of clinical education through further investments in field based programs.

This investment will support two or three growth drivers, sales excellence and clinical education. The third area, innovation, will see further investment in the future as the global businesses complete formation and alignment.

Our objective will be to invest in larger R&D projects and platform technologies which have greater risk, but also significant value. I’d now like to turn it over to Chris for the financial results. .

Thank you, Jim. Good morning everyone. I’d like to provide some detail on our second quarter results by reviewing key elements of our income statement, balance sheet and cash flow statement and also by providing some additional color on capital deployment and highlight a few key related initiatives.

For the second quarter, sales excluding precious metals, declined 7.7% compared to prior year as internal growth of 3.6% was more than fully offset by negative currency translation of 10.9%. Net acquisition growth was negative 0.4% in the quarter, as the impact of several small divestitures of non-core product lines offset modest acquisition growth.

We had strong operating margin performance in the quarter as our second quarter operating margin rate of 21.1% of sales, excluding precious metals on an adjusted basis, improved by 180 basis points over 19.3% in the prior year quarter. This was our strongest quarterly operating margin performance in 28 quarters.

This represents the impact of significant internal focus on this measure via our global efficiency improvement initiative, as well as positive benefits from price, mix and currency, partially offset by incremental spending to support our efficiency initiative, as well as lower absorption in the period as we brought down inventory by three days in the quarter, compared with three-day-billed in the second quarter last year.

Gross profit rate on an adjusted basis in the second quarter was 60.2% of sales, excluding precious metals and this was an improvement of 170 basis points over prior year. SG&A expenses on an adjusted basis were 39.1% of sales, excluding precious metals, net down 10 basis points compared to the second quarter of 2014.

The benefits of our global efficiency program are currently skewing more heavily to the gross profit line, rather than the SG&A line at present as is the currency impact. The global efficiency program is increasingly impacting our P&L on a number of areas.

I commented last quarter on the increasing momentum of our global procurement initiative and we continue to be pleased with the traction of this effort. In addition, we’re realizing the expected impacts of our earlier restructuring efforts and anticipate accelerating benefits from our more recent restructuring initiatives.

In the quarter, we recorded $38.9 million of restructuring and other costs. That’s largely associated with our global efficiency program. The largest impact was from the restructuring of our European laboratory business that we announced in late May.

In addition to improving the profitability of this business, this initiative allows us to realign resources on strategic growth opportunities as opposed to less profitable and lower growth non-strategic product lines.

As part of the initiative, we are discontinuing some of these low margin non-core products, and in the second quarter, discontinued products deflated internal growth on a global basis by approximately 35 basis points.

With respect to our return expectations on restructuring initiatives up this tight, we typically look for ROIs between 20% and 40% on these initiatives.

And we expect the savings associated with the European laboratory restructuring initiative to begin to materialize in the back half of the year, with the savings mostly saved in by calendar 2017 with a small incremental amount carrying over into 2018.

Our reported tax rate for the second quarter was 32.2%, reflecting the temporary headwind associated with some of the restructuring efforts. Our operating tax rate for the quarter was 22.8%, up 40 basis points above our second quarter rate last year.

And as projected, we are seeing a slight continued headwind in tax rate as a result of projected unfavorable geographic earnings mix in 2015 compared to last year. Net income attributable to DENTSPLY International on an as-reported basis in the second quarter was $44.1 million or $0.31 per diluted share.

That compared to $90 million or $0.62 per diluted share in the second quarter of 2014. These results include a number of items which we’ve listed in the schedules in the release, the most significant of which is the restructuring cost that I described earlier.

On an adjusted basis, net earnings were $103.3 million in the quarter, compared to $99.7 million in the prior year quarter. Adjusted EPS improved by 6% to $0.73 from last year’s second quarter, and currency represented a headwind earnings in the quarter of approximately 5%.

Moving on to cash flow, our operating cash flow for the quarter was $145.8 million. That’s down $9.9 million from last year’s record second quarter of $155.7 million, but it represents a 50% increase over the second quarter of 2013.

We continue to be very pleased with our cash flow performance, as our trailing 12-month operating cash flow was up 9% versus the previous 12-month period ending June 2014, while our free cash flow yield remains very strong at 6.5%.

Moreover, our free cash flow conversion continues to be excellent as our second quarter free cash flow of $129 million represents 125% of our adjusted net income for the period. Inventories finished on 115 days in June. That’s down three days sequentially and down eight days from prior year.

We traditionally see inventories creep up in the second quarter, so the sequential improvement this quarter is reflective of our ongoing focus on driving working capital improvements. Accounts receivable were at 58 days in June. That’s flat to prior quarter and on a sequential basis and down one day from last year.

Capital expenditures were $17 million in the quarter, while depreciation was $19 million and amortization was$11 million. During the quarter, we repurchased approximately 200,000 shares at an average cost of $51.68 per share.

For the first quarter 2015, we’ve now repurchased one -- first half of 2015, we have repurchased 1.9 million shares and our leverage ratio defined as net debt divided by trailing 12 months EBITDA stood at 1.9 times at the end of June.

Looking forward, our balance sheet and cash flow generation continue to provide us considerable flexibility to create shareholder value through acquisitions and share buybacks. Looking forward, we anticipate the currency headwind to earnings to be a bit more than the $0.07 impact headwind that we experienced in the first half of the year.

That’s net of the impact of our cash flow hedges. As you may recall, these hedges helped to partially blend our FX rate over a rolling 18-month period. And while they do not eliminate or reduce the long-term impact of currency changes, they do reduce the volatility by essentially gradualizing these rate changes.

Finally, as Bret indicated, based on our strong first half performance, we are raising our 2015 earnings guidance – earnings per share guidance to $2.54 to $2.62 on an adjusted basis.

This reflects the strength in momentum in internal growth and our global efficiency program, as well as the additional slight headwind in currency that I just described. I would note that we have a tougher comparison in the third quarter as that was our strongest quarterly performance last year while that comparison eases in Q4.

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

[Operator Instructions]. And we will take our first question from Robert Jones with Goldman Sachs. Your line is open. .

Thanks. This is Nathan Rich on for Bob this morning. First on the lab restructuring, it sounds like you guys can see the light at the end of the tunnel. I think you said it was a 35 basis points drag on internal growth in 2Q.

Bret, could you maybe just update on what you have left now that you’ve received the approval to move forward in Germany? And as we think about the back half of the year, should we think about internal growth being maybe higher by a similar amount to that 35 basis points as we think about our models?.

Okay, I’m going to take a stab at that and then Chris may have something to add there. Just for reference purposes, we announced back in September last year that we were entering into the negotiations with the works council to restructure the European lab business.

Those negotiations took us out till May, so about eight months, eight or nine months we were in a period where the market knew we were going to do something there, our employees knew we were going to do something, but it wasn’t resolved what exactly it would be. So the announcement may allowed us to then move forward and implement the program.

In the interim time, there has been a slight drag on growth of this business because the market could see what the options were and start to move away from those product lines that we are likely to discontinue and of course there was confusion or disruption in the employee group because of that also.

So this quarter, of course we announced in May and the impact is now known which products exactly will be discontinued, et cetera and the employee base as being [indiscernible] on the products that will go forward.

I expect that drag, although I have a hard time quantifying it, I expect that drag from the discontinued products now will actually increase a little bit for a couple of quarters and we’ll probably normalize that sometime after the first quarter next year or so. I don’t know, Chris..

I concur with that. I think Nathan, the underlying, I would assume that the underlying performance, operational performance of the business would actually improve given the certainty in terms of how we’re moving forward.

Obviously, knowing that there’s restructuring that’s being negotiated, that’s uncertain for the employees and obviously the ability to focus on a moving forward basis on really the new business, I think is very much a positive moving forward.

The product lines being discounted however there’s now certainty on those and certainly certainty in the marketplace and certainty with customers.

I would expect that headwind to continue for the next few quarters and probably a threat, I mentioned increase a bit in terms of the product line discontinuation, offset by really what I would expect to be some improvement in the operating performance, the underlying business as a result of the restructuring, known being known and moving forward..

Thanks helpful and if I could ask one quick follow up. One of the areas of re-investment that you talked about was expanding the sales force.

Could you give us any metrics on how big of a piece that is, how many reps will be added, what percent of the total that is? Can you remind us, in the past when you have invested in the sales force, what does the ramp up period look like before the new reps get up to full productivity?.

Go ahead, Jim..

Yeah, Nathan. We’ve taken a review of our global sales organization. Certainly look at some of the areas that we are seeing some good performance and recognize that further investment would give us some upside. More specifically, we’re looking really at the US market and selectively at some of our emerging markets.

We’ll make some decision just based on deployment and current levels at to how much that will be. We’re finalizing that at this point in time. From a standpoint of payback for me, it depends on obviously a lot of factors.

Market to market segment and obviously quite frankly in some of the emerging markets, the actual cost of a rep, which tends to be lower. But we see a ramp up period of probably 12 to 18 months. We like that to be obviously closer to 12, but that’s a good metric that we look at overall..

Jim, this is Derrek, Nathan.

That’s talking about the earnings implications of the move, right Jim?.

That’s correct. .

Sales implications happen much earlier than that..

Sales implication happen immediately, but from a standpoint of us being able to fund the expansion, we typically see that to fully fund that expense or recover that expense, it’s usually a year to year and a half ramp up..

Have you made a decision on how many reps you’re going to be adding?.

Not specifically, no..

Okay, thank you..

That’s an on-going program. So as we generate savings, we’ll be deciding. Some of the savings of course are going to drop through in the form of margin expansion, but as we generate savings, that will become part of our normal budget process and in some time, in some instances, it will be mid-year adjustments, off cycles additions.

It's hard to telegraph exactly what the number would be at this point..

Makes sense. Thanks for the questions..

We will take our next question from Steve Beuchaw with Morgan Stanley. Your line is now open..

Hi guys. Good morning and thanks for taking the questions. So first question is I wonder if you could spend a minute reflecting on the 2017 margin objectives. It's always nice to hear how the thinking there is evolving and I'd say particularly here, given how strong the margins were in the quarter.

Of course we appreciative that you want to continue investing in the business, but then it sort of begs the question, okay, if we have now more flexibility to invest in the business, considering how well we are doing in terms of the efficiency initiatives, then maybe that positions you to think talk a little bit more of how you think about organic growth evolving over the next couple of years.

How do you think about the interplay between those dynamics given the progress that you’re seeing here?.

This is Bret. I'll take a stab at that. Certainly, we are ahead of where we thought we would be in the margin expansion program. It's beginning to gain traction now, strong traction and that creates flexibility for us, because you might remember, this is not, and you alluded to it in your question, this not just a cost cutting exercises.

This is an exercise of taking fixed costs and turning them into variable costs so that we can accelerate investments where we see growth opportunities. That’s probably the most important part of the program frankly, but we are ahead of where our internal targets were on the margin expansion program.

That’s going to allow us to bring some of the investments forward and we should generate growth sooner in the program as well. I will say, with respect to the 20% operating margin target in 2017, we are ahead of where we thought we would be now. I think you should view that 20% opening margin target as an interim target.

We’ll re-assess that target with respect to where we are in the program when we get to that program. Now, we are at 99 for the first six months of this year. We’re doing pretty well which is what's giving us the flexibility to invest in the growth initiatives and move forward.

I don’t want to get too far out in front of ourselves here on trying to describe the impact on internal growth, but of course we wouldn’t be making those investments if we didn’t think it would accelerate internal growth going forward.

Chris or Jim, you want to add anything?.

No, I think that’s accurate and obviously we are headed where we thought we’d be. We are getting some help from FX on that line, but we’re also getting some good help in terms of the efficiency program. That’s regaining traction and based on the moves initiatives in play, it look like it’s going to accelerate, which is in line with our expectations..

I would also say there’s transitionally effects too. Obviously as we got through this and we create new territories, we create new positions. We transition businesses. There’s a time phase until those thing become totally efficient. .

Just one follow up to a comment that was made in the prepared remarks for you, Chris. Thanks for calling out the cash flow in the business and how that relates to what's going on in net income.

We’ve been wondering about the balance sheet, the extent to which you might, with working capital efficiency, be able to drive faster, free cash flow growth over time.

Have you guys thought much about how much or how sustainable that is, the ability to drive free cash flow growth ahead of net income given what you’ve seen on the balance sheet today? Are there any parameter around that that you could share with us?.

We certainly believe that there’s some suitable improvements possible here for the next several periods. Obviously, it's going to vary quarter to quarter. I don’t want to set the expectation on a quarterly basis, but I think over the next couple of years, you should expect us to continue to make improvements in terms of working capital.

We are still in over 115 days of inventory. That’s not exactly world class. That’s better than where we’ve been, but we’ve got some significant opportunities and a number of initiatives in play to drive that down, both in terms of how we operate, but also how we are structured.

Again, I think that you should expect to see that gradual improvement, again not necessary quarter to quarter but over time. Again, the fact that historically I think if you went and looked back, last year we improved, we increased inventories in the second quarter by three days. You go back to 2013, I believe they went up by six days in the quarter.

To get inventories down by three days in the second quarter, which is typically one of our largest build periods I think is indicative of the traction that we’re getting..

Okay. Thanks again guys. Have a good morning..

We will take our next question from Brandon Couillard with Jefferies. Your line is now open..

Good morning. Bret, with respect to Europe, if we look back over the last two years, we’ve seen a real I guess saw tooth pattern in the trends there.

Realize there’s been several moving parts between CIS and discontinued products, but do you feel comfortable enough at this stage to say we’re perhaps back on more sustainable consistent growth trajectory in that region?.

I think that’s an interesting question because the saw tooth pattern, Brandon occurred because of different countries moving in different directions all at the same time, whereas today the pattern is, it's much more consistent, meaning many more countries are moving in the right direction than before there was a balance, more moving down and more moving up, et cetera.

Now there seems to be more momentum in more countries. We saw in the results today, we still have countries where there were slight declines in sales growth, but there were many, many more that had slight increases in sales growth and thus it appears to be a more sustainable pattern to us. Now, time will tell.

We’ve been surprised before, but I think the region in total seems to be more stable today, seems to be -- they’re still dealing with some issues in Greece and et cetera, but that doesn’t seem to create any contagion to the other countries at this point.

It's hard for me to make that call at that point, other than to say what we see right now would tell us that it looks to be more sustainable. .

Thanks. That’s helpful, and then maybe one for Jim. I didn’t hear you mention the ortho business. Has there been any change in the ASP environment there and any update you could give us on where you are with MTM in terms of the rollout and the traction you’re seeing there would be helpful. Thanks.

Certainly. Yeah, from the standpoint of the ortho business, I would say that the pattern is pretty similar to what we’ve seen in the past few quarters. The market is still very competitive. I would say that we are seeing some improvement in our North American business. Europe and rest of world still remains very, very competitive.

From the standpoint of our MTM business, obviously that is, it is a smaller business, but we are seeing some excellent growth. We are pleased at the case uptake that we see in that business.

A lot of it is going to be our continued investment in the clinical education program and our sales efforts to ensure we get continued adoption and increased case volume. But we are pleased with the performance of the MTM business..

Thank you..

And we can take our next question from John Block with Stifel. Your line is now open..

Thanks. This is actually Ethan Roth on for John Block. Maybe first just on the margin expansion, it’s been critical of a story and you’ve exceeded the 2007 goal of 20% in the quarter, which is allowing you to reinvest a portion of the savings fund growth initiatives.

I know that you mentioned that you are ahead of plan, but looking beyond 2017, what do you consider to be the peak operating margin for the overall business?.

Well, clearly this business can and has produced operating margins above 20% and that’s why we continue to describe the 20% target as an interim target and a net target, meaning it’s net of the reinvestment and it’s an interim target which we would expect to meet on the timeframes we’ve established.

But as we get closer to that timeframe, we’ll be able to update that target and the guidance based on the maturity of our efficiency program and what we see the reinvestments generating in returns.

So I don’t want to put a stake in the ground on what the maximum operating margins are for this business, but it’s above that 20% target that we have today..

Okay, great. And then and I know you mentioned that momentum has picked up in the business and the 2Q internal stack growth stepped up a bit sequentially, but your comps get more difficult in the back half of the year.

Do you think it’s realistic to think that you can maintain this 3% plus internal growth, just given the momentum of the business?.

We don’t publish an internal growth target for the year. Although the reason I went through what we see in the regional markets was to give you some indication of what we see the underlying conditions to be. So at this point, we see stable to improving results in both the US and Europe and that’s, it’s 80% of our sales base, so that’s a big factor.

And then the wild card has always been the rest of world countries and there’s 120 countries in that category. So it’s a little bit more difficult to make a firm call on that. But based on the underlying trends that we see in the markets today, we feel pretty good about growth prospects for the back half of the year.

And I don’t think I would --We are not too concerned about what the baseline is in making those kind of calls at this point..

Great. Thank you very much..

And we can take our next question from John Kreger with William Blair. Your line is open..

Hey guys, this is Matt. I have a question specifically related to the US market. You’ve seen a little bit of acceleration there. Is that coming from patient traffic spend per visit, or some of the other specialty products? Thanks..

Okay Matt. That’s difficult for us to know what those underlying trends are at the dentists’ office themselves. I mean we buy surveys and so forth and some of those show that patient traffic is improving.

But from our perspective, the general consumables, the products we sell through distributors are really the strongest category we have right now and those products really don’t move other than through patient traffic.

So that tells us -- I mean if we had to guess, we would say there has been an acceleration of patient visits and these patients are getting back into their office. And generally when that happens, then you see the specialty business pick up on a little bit of a trailing basis.

So if we had to guess patient traffic trends have improved from where they were for instance a year ago and with the job growth coming, we would think that that would continue. I don’t –Do you guys have anything to add on that..

I think that’s right..

That is correct..

And if I could ask a follow up relative to margin in the quarter. You said price, mix and currency were some of the reasons as to why you got some expansion.

Have you guys broken that out as to the contribution?.

Yeah. If you look at the 180 basis points in the quarter, a bit over half is currency. Again recognizing that with the cash flow hedges, the impact on our bottom line is less than the translation impact to the headwind on the top line.

About a third of it, a little over a third on a gross basis is the efficiency program and pricing mix are helpful, but then we had headwinds from reinvestments and then also headwinds from absorption as I mentioned earlier where again last year we built inventories by three days and this year we brought it down..

Great. Thank you. .

[Operator Instructions] We can take our next question from Jeff Johnson with Baird. Your line is now open. .

Thank you. Good morning guys. Congratulations on a very good quarter here. Just want to ask on organic growth, I want to make sure I understand.

Bret, are you saying that you’re going to absorb some of those inefficiencies as you’ve shut down some of these lab stuff and that’s just going to get absorbed into organic growth? You’re not going to drop that out to any kind of discontinued operations or anything where you’d ax that out of your organic growth rate?.

Jeff, we didn’t intend to do that. As those products come out, it does create a slight drag on internal growth.

Our plan was to report internal growth to you each quarter and then let you know what the drag was, but we were not going to attempt to normalize it for a product dropping out here or there and we’ve quantified the range of that drag going forward here.

Of course that’s a temporary drag because once we anniversary those discontinuances, then that’s going to drop out. .

There are also new products being launched in that business as well. .

Yeah, correct. .

Okay, that’s helpful. I just wanted to make sure so I’ve got my model set up. And then in the US, the 3.9% organic growth, this is going to sound like a very picky comment in the context of a very good quarter, so it’s not meant to be, but a little bit slower than last quarter’s 4.5%. End markets seem to be getting better.

Is that just normal fluctuation? Anything to think about there in the US number?.

Jeff, that’s a very picky question. .

I know it is. .

I think it fluctuates around -- a lot of things can affect that. Dealer inventory is going to affect that and so forth by 50 basis points here. Yeah, 50 basis points to 100 basis points. We’re not troubled by the -- we’re slightly stronger in the first quarter.

It’s a little bit, just a little bit weaker here, but overall this year we’re up around 4% organically in the US, probably a little bit above the market. If we had to guess in the market, we’d say somewhere 3 and 3.5 is what the market is growing. We’ll know a lot more than that as we’ve seen more distributors report, et cetera.

But we feel pretty about the number. We feel good about the momentum. The execution is good and the seed investments we’ve put in are bearing results here. I don’t think we’re overly troubled by the US number. .

Understood and then last question for me just, Jim, anything you can give us by geography on maybe the dental implant numbers? We’re still seeing some nice pick up in North America and maybe you already talked about this. I’ve been jumping between calls, but just any geographic details on the dental implant.

Then maybe I didn’t hear you here say anything about the medical business this quarter. .

I’ll take implants. You want –.

Medical, yeah..

You can comment on medical. Implant unit growth was pretty nice for us in the US in the second quarter. If I had to characterize it regionally, I’d say the rest of the world was our strongest region and that followed by Europe and the US. The trends seem to be favorable there.

It varies by technology at this point, but we think we are picking up momentum on implant unit placements and that’s being driven by the new product that we’ve been talking about for the last year or so on these calls, ASTRA TECH EV.

Did you want to comment?.

Yeah. Jeff, as it relates to the medical business, we are seeing really good mid-single digit growth in that business. We’re pleased with the performance. We’re seeing some nice growth in our US market and in addition we have some fairly significant new products coming in in the coming quarters. So we look for continued improvement in that business. .

And Bret, with EV being the main driver and pricing on that product has to be pretty good at this point, you refer to unit growth and I can understand why you might for Asia PAC, but I would assume in US and even in Europe, unit growth doesn’t differ a whole lot from dollar growth?.

Yeah, the unit growth does differ a little bit, meaning the point that you raise is important and that is that the price is higher on EV than some of the legacy products. So as the mix shifts to EV, the effect on revenue is a little bit higher than the effect on unit growth.

So I’m using unit growth here to give you a perspective on what’s happening to the number of our own dental implant screws that are getting placed, irrespective of which brand it is..

All right, that’s helpful. Thank you..

[Operator Instructions]. At this time, there are no additional questions. I’d turn to turn the program back over to our presenters. End of Q&A.

Thank you all very much, everyone. That concludes our conference call today. I’ll be around for follow-ups this afternoon. Have a nice day..

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