Derek W. Leckow - DENTSPLY SIRONA, Inc. Jeffrey T. Slovin - DENTSPLY SIRONA, Inc. Joshua Zable - DENTSPLY SIRONA, Inc. Christopher T. Clark - DENTSPLY SIRONA, Inc..

Brandon Couillard - Jefferies LLC Jeff D. Johnson - Robert W. Baird & Co., Inc. Tycho W. Peterson - JPMorgan Securities LLC Steve C. Beuchaw - Morgan Stanley & Co. LLC John C. Kreger - William Blair & Co. LLC Robert Patrick Jones - Goldman Sachs & Co. Jonathan Block - Stifel, Nicolaus & Co., Inc. Steven J.

Valiquette - Bank of America Merrill Lynch Vik Chopra - UBS Securities LLC.

Good day and welcome to the Dentsply Sirona First Quarter 2017 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time I would like to turn the conference over to Derek Leckow, Vice President of Investor Relations. Sir, you may begin..

Thank you, Ellen, and good morning, everyone. Welcome to our first quarter 2017 conference call. I would like to remind you that an earnings slide deck presentation relating to this call is available on our website at www.dentsplysirona.com.

Before we begin, please take a moment to read the forward-looking statement on slides two and three of our earnings slide presentation. During today's conference call, we'll make certain predictive statements that reflect our current views about the future performance and financial results.

We base these statements on certain assumptions and expectations of future events that are subject to risks and uncertainties. Our most recent Form 10-K lists some of our most important risk factors that could cause actual results to differ from our predictions.

And with that, I'll now turn the program over to Jeffrey Slovin, Chief Executive Officer of Dentsply Sirona.

Jeff?.

Thanks, Derek. It is my pleasure to welcome all of you to our first quarter 2017 conference call. Also joining us on the call today Chris Clark, our President and Chief Operating Officer, Technologies; and Joshua Zable, Vice President of Corporate Communications and Investor Relations.

Before I begin, please note that our CFO, Uli Michel, will not be on the call today to attend to a medical issue. We look forward to his return next time. Turning to the call, our results this quarter were far from stellar, but I am pleased that we are able to deliver on critical strategic objectives.

We are now better positioned to accelerate our short and long-term growth. In March, at the International Dental Show, Dentsply Sirona set the standard for what it means to be a total solutions provider for the dental professionals and labs. We unveiled how an enabling technologies integrated with procedural solutions provide better clinical outcomes.

We also reinforced our position as the innovator in the industry. At the Show, we launched 50 new products which will drive our growth for years to come. This morning we also announced our plans to expand distribution in the U.S. market. We are excited to expand our partnership with Patterson, with a new long-term U.S.

distribution agreement that will help drive adoption of our digital technologies and solutions for years to come. Together, over 20 years, we've created CEREC as the standard for single-visit dentistry in the U.S.

We are also excited to expand our relationship with Henry Schein in North America, with a new three-year agreement beginning in September, under which Henry Schein will begin selling our leading equipment brand in the U.S.

This should benefit all of our product lines, including Schick Sensors, Treatment Centers, extraoral imaging, and of course, CEREC as well. Both Patterson and Henry Schein will be critical drivers in accelerating adoption of our digital technology and our unique integrated solutions. We firmly believe our now new go-to-market strategy in the U.S.

will accelerate our growth for years to come. I will discuss this in more detail later. Our merger-related initiatives are on track. We will ramp cost and revenue synergy activities throughout the year, driving top and bottom-line growth for 2017. Turning to the quarterly results.

First quarter internal sales declined 4.7%, driven by decline in technology. Consumables and Healthcare grew 2.4% this quarter. Our Consumables business grew in each of our three regions. Technologies declined by approximately 13% or $57 million.

Growth was unfavorably impacted by approximately $40 million as a result of quarter-over-quarter changes in net equipment inventory levels at certain distributors in North America and Europe, related to the transition in distribution strategy in North America. The remaining decline is attributable to weaker retail performance.

The largest contributor being the U.S., where the transition to our go-to-market is having an impact. Turning to geographies. This quarter Europe led the way with 2.2% internal growth. Consumables growth offset, no growth in Technologies. Revenue synergies are creating momentum for us in Europe.

Based on our assessment, our Consumables outpaced the market for the second quarter in a row. Technologies in Europe was essentially flat. We were able to compensate for the unfavorable impact of a $5 million change in net equipment inventory and the slowdown ahead of the International Dental Show.

As a reminder, in Europe and in Germany in particular, many of our customers wait for the Show to purchase new equipment. We are pleased to report that we had a record order intake at the event. Our success at the Show across both Technologies and Consumables highlighted the power of our merger.

Rest of World was down 5.2% on top of last year's 7.5% growth. $5 million or 220 basis points of the decline in Q1 was driven by a change in net equipment inventory level at a distributor in Kennedy associated with the transition of our distribution strategy in North America.

The remainder of the decline was driven by the Technologies segment, where we had very strong growth in certain countries last year. In Q4 2016, the region grew almost 10%, driven by Technologies. We continue to expect the Rest of World region to be our fastest growing region this year. U.S.

sales were down 11% driven by decline in Technologies, as I already discussed, the primary driver of the decline was due to equipment inventory changes and to a lesser extent distributor retail performance. Our North American Consumables business grew low single digits.

We were pleased to see the business accelerate sequentially from the fourth quarter. We continue to believe that North America market is stable and showing modest improvement.

During the quarter, we continue to do our active capital allocation program; we bought back another $85 million of stock and announced a small, but strategically important acquisition, using our strong and flexible balance sheet will continue to be a lever for us to increase shareholder value.

I'll now turn the call over to Josh who will review our fourth quarter financials and outlook..

Constant currency sales growth to range from 4% to 6%. This includes approximately 150 basis points of net benefit from acquisitions' divestitures, implying internal growth of 2.5% to 4.5%. At current exchange rates, this translates to reported revenues, excluding precious metals, of $3.95 billion to $4.03 billion.

We now expect our adjusted effective tax rate to be 19.2%. Our EPS range implies a full year diluted share count of approximately 231 million to 233 million shares versus 222 million in 2016. This reflects approximately $0.09 of headwind at the midpoint and is simply a function of the timing of the merger.

We still anticipate FX headwinds of $0.08 to $0.10 for 2017. As we explained on our last call, we will continue to experience headwinds associated with inventory reductions. For now, the inventory reductions are expected to continue to negatively impact our net sales into the third quarter of 2017 by approximately $50 million to $60 million in total.

As other market channels are brought online in the third and fourth quarter, sales through these channels could offset the majority of the mentioned inventory reduction resulting in a net of $10 million to $20 million unfavorable impact on our revenues for the remainder of the year.

We expect this to translate into a much stronger back half of the year. As always, I suggest our investors evaluate our business on an annual basis as our quarterly progression can vary. I will now turn the call back to Jeff..

Dead Men Tell No Tales to raise the profile of our technology and educate potential U.S. patients on the benefits of CEREC and single-visit dentistry. We also ramped up our efforts to reach different demographics by appearing on well-known stations such as MSNBC, CNN and ESPN.

The other critical component to accelerating adoption is the partnership of our distributors. This morning we announced a new go-to-market strategy in the U.S. The U.S. market is the largest in the world and critical to our long-term success.

In September, Patterson and Henry Schein, the two largest distributors in the country, will have access to our full distribution product line. Our consumables have been part of both Henry Schein and Patterson since the early days of dental distribution in the U.S.

We have a unique and important relationship with Patterson, who has been an exclusive partner selling equipment and technology in the United States.

Together we have been a driving force in the adoption of digital technologies and our new agreement ensures that our companies continue driving penetration of digital technologies and solutions in this important market.

We're also excited to expand our relationship with Henry Schein and are confident that adding our equipment lines to their sales and service infrastructure should be complementary, as they already know us and our products well. Schein can leverage the knowledge and success they've had selling our technology in Europe.

With both distributors carrying our full distributed product line, we will expand our reach into the U. S. market. Awareness about the digital and single-visit dentistry will increase and expand the market. With CEREC only 17% penetrated and 3D even less, there is significant room for growth with both Patterson and Henry Schein.

Equally important with both Patterson and Henry Schein, carrying our full distributed product lines, we will be able to reach the majority of U.S. dental professionals with our end-to-end solutions. As they adopt our full solutions, we will grow faster.

As our installed base increases, we will have even more opportunities to cross-sell our product portfolio. A critical component to cross-selling is also integrating our products. Our leading Treatment Centers are now integrated with our endodontic and implantology systems, further differentiating our products.

Dentsply Sirona Treatment Centers are truly the centerpiece of the dental office and critical hubs in our ecosystem. We had another record quarter before the IDS in Q1. We also continue to have success selling our Celtra Duo Blocks and other CEREC consumables to new users of our technology. This is rapidly growing multi-hundred million dollar market.

This synergy opportunity is significant. We are ramping sales rapidly. As our one global team works hand-in-hand, we are seeing clear benefits. Where our commercial strategies are critical to driving growth, innovation will remain the hallmark of Dentsply Sirona.

At the American Association of Endodontic's annual meeting, we launched our new CEREC Ortho 1.2 software and the new self-ligating bracket system In-Ovation X.

This is the first meaningful innovation of self-ligating brackets in many years and reduces both treatment time and professional chair time compared to the current standard of care in this category. Our lab business has a slew of new products in the market. Materials like Celtra Press and Cercon xt are driving momentum in the marketplace.

We continue to invest in research and development as well as our sales and service infrastructure. With over 4,000 sales and service professionals around the globe, our reach is unparalleled in the industry. Our merger is enabling us to make these investments as we generate cost savings.

We have many multiple reorganizations and country formation projects in process. Our cost synergies programs remain on track and will ramp into 2018. Top-line growth remains at the forefront of our priorities and strategies, but we will also remain committed to driving leverage through our P&L and driving increased profitability.

We anticipate earnings growth to accelerate in the second half of the year. Finally, our capital allocation continues to be a key component of our strategy. With our strong balance sheet, we remain focused on our pipeline of deals and a disciplined approach.

In addition to acquisitions, we intend to consistently return capital to shareholders via share repurchase and dividends. I'd like to thank our customers for their loyal support, trust and enthusiasm for Dentsply Sirona. We are pleased to announce our new agreements with Henry Schein and with Patterson today.

We are truly excited about the possibility of growing together. I'd also like to extend a special thanks to our employees. Integrating two companies can be difficult and many have been working tirelessly to make Dentsply Sirona a success. Their commitment to improve the lives of dental professionals and their patients is inspiring.

We will now address your questions. Operator, please proceed..

Certainly. We will now take our first question from Brandon Couillard from Jefferies..

Thanks. Good morning..

Good morning..

I guess, Jeff, starting with the Henry Schein deal. Can you speak to the importance or the somewhat earlier start date, being September 1? I was previously under the impression that the Patterson exclusivity would run through the end of September. And is there any relevancy to the three-year period? And I guess, part two, maybe for Joshua.

You seem to point to a slightly or a wider band for the inventory de-stocking headwind this year, $50 million to $60 million versus the prior $50 million.

Can you just elaborate on the shift there?.

Thanks, Brandon; important question. Of course, we're celebrating today the announcement of Henry Schein. As we stated on our call in February, the transition to opening up distribution has its challenges.

And we made it clear that we were changing our go-to-market and we felt, as an organization and working with Patterson, that this was the right time to be able to announce this. This is a significant decision for us.

We also felt, by doing this now, we were able to stay focused on our exclusivity with Patterson through the summer, but be able to bring Schein on for our September and our DS World, as we move forward to the back half of our year. The significance of the three years is just an initial term for us.

We expect to be doing business with our full distributed lines with Schein for years to come. We're very excited about how our teams have worked together, as we've seen the success in Europe and what we've been able to do on the distributed consumable side with Henry Schein.

The time is now, ever since it was announced that we would be changing our strategy and opening it up, and to get the clarity in the marketplace were exactly what we're doing.

In the absence of clarity, we have issues with our customers, we have issues with distribution reps, we have rumors, and frankly, we have our own people wondering what's going to happen. Now we have that clarity about how we're moving forward and this is important.

And certainly, we have confidence in our long-standing relationship with Patterson on the technology side, certainly, it's been 20 years of exclusive with CEREC which is very special to us. Henry Schein has had and continues to have a special relationship with us, has had exclusive and continues to have CEREC exclusive in many areas.

And bringing it all together today, allows us to move forward in a very powerful way, get the field to focus on the exclusive they have, to understand the way forward for us and to get down to what's most important, and that's taking care of the customer and executing on our plan, which is why we talked about the second half being where we expect it to grow faster..

Hey, Brandon, this is Josh. Just on the question about the band of inventory. I think you're referring to what we said last quarter, when we talked about a $50 million net impact. Just to be clear on what I had mentioned was that we expect a $50 million to $60 million impact going forward from here on out, with the bulk of that happening in Q2.

The net impact of all of this should be $10 million to $20 million the remainder of the year. I think it's hard to pinpoint a specific number obviously, because ultimately inventory is a function of retail performance. And as Jeff alluded to, transition can cause some slowness there, but of course, clarity is important to help get that going again.

So I think from a modeling perspective, the way you should think about it is, $50 million to $60 million, bulk of that in Q2, and then like I said, remainder of the year, $10 million to $20 million.

If there's a little bit more than $50 million, we think there're opportunities that we might be able to offset it with some other market channels, but again we'll continue to keep you updated..

Okay. Thank you..

Thank you, Brandon..

Thank you. We'll take our next question from Jeff Johnson from Robert W. Baird..

Thank you, guys. I guess two questions.

The first one, just – are there going to be any differences in how you support Patterson and Schein for maybe a sales and education perspective? Does that mean we need to think about margin profile of your business through Schein or Patterson as different at all between the two in the U.S? That's the first question.

And then Josh, just on those inventory comments. I guess I completely misunderstand in here. Guidance as of last quarter was that we would see $40 million to $60 million of the inventory headwinds for the year. We saw, I believe, $40 million to $50 million in the first quarter.

Now you're saying there's another $50 million to $60 million – where's this $50 million to $60 million all of a sudden coming from? That's a new number to me. So if you can help me out there, that would be great. Thanks..

Okay. Jeff, Patterson has a 20-year experience with our product offering and infrastructure and training available today. We will work with Schein.

We have a plan in place that we are not going to compromise our customers on their training and education of this and that's why we're confident about bringing on both distributors because of our ability to take care of the customer and expand our reach. And we have a lot of confidence in Henry Schein's capability to do this.

With regard to the margin profile, we're not going to get into the contracts that's been agreed to by both parties, but we are confident that the way we've set up our structure benefits both Henry Schein and Patterson..

So Jeff, just to, again, go back on the inventory. We talked about a net number for the year last call. You saw an impact this quarter and I talked about the $50 million to $60 million additional impact going forward. That will be bulk of it in Q2, could leak into Q3 as well.

And then of course, we talked about is a net number, which means we believe there's some offset opportunity from other channels coming online..

Yeah. Jeff, I think it's important to understand that what we're talking about at the end of the day is $50 million to $60 million. We absolutely believe that as other channels come online, there will be a net effect.

So we have not changed from that perspective and we certainly also believe that there are global implications of this and opportunities for us..

Thank you, operator. Next question, please..

Thank you. Our next question comes from Tycho Peterson from JPMorgan..

Hey, thanks. A couple. First, was there any – I mean, if we look – Technologies were still down just under 4% after adjusting for Patterson. Can you maybe just talk about how much of that was a pre-IDS slowdown? I think Schein, this morning, talked about 197 deduction for (37:01) forward sales in the year-end.

So do you have any impact there, or is this also just a function of Patterson reps maybe losing a little bit more focus?.

Well, I think, certainly that played a role in this. That's why we wanted to get the clarity out there to the field exactly what was going on. There were too many rumors that we're stalling fails and that was critical to what was important there.

And certainly ahead of the IDS, it always stall sales as they look forward to see what we're going to bring out. Now on our last call, we've talked about announcing 50 new products and technology and that certainly played a role for us.

We were pleased though with what we were seeing, particularly in Germany and Southern Europe, but there was, in general, slowdown.

And this doesn't just affect Europe, but this affects other parts of the world as they are looking to find out what exactly is Dentsply Sirona, but I would also highlight that our Consumables showed consecutive sequential growth in Europe ahead of this. There were no delays there.

We feel good about what that tells us, we're able to do in the marketplace, but it is a function of – this was our first IDS together. The marketplace wanted to see what's Dentsply Sirona really about. Frankly, yes, we've been together for a year, but the IDS is such a big showcase.

And to be able to see the order intake and reach records for all of our product areas and segments. And in fact, CAD/CAM benefit and specifically, CEREC, clear double-digits from us coming together. As we've always said, at Dentsply Sirona, we believe we'll accelerate the adoption of our technologies..

Okay. And then just one follow up on CEREC dynamics. Obviously, we saw Schein did a deal with Ivoclar.

Well, can you just maybe talk on some of the shifting pieces you're seeing in the market on competitive dynamics, I guess, in general for CAD/CAM? And maybe the post-IDS reception to you guys opening up CEREC?.

Yeah sure. In a moment, I'm going to pass the call to Chris. This highlights what we've been saying to the market for years. The market is going digital. Single-visit dentistry matters to the dental professional and the patient. You cannot ignore that whether you're a materials company or an equipment company.

And I would argue every dental company understands the impact that this megatrend is having. And of course, this IDS showcased the fact that Dentsply Sirona is in the best position, but of course we're going to have competitors come on to try to play a role in this. As we've said, we're only 17% penetrated in the U.S.

Imagine what it is around the rest of the globe. With that, I'll turn it to Chris..

Yeah. Tycho, it's Chris. I think this is case when you're successful in market, it's going to attract attention. I think that's what we have here. And as Jeff mentioned, digital dentistry is here to stay. We're at tipping point.

From a competitive standpoint, more attention to the category is going to drive more interest and that's going to accelerate penetration. And we think that's good for us. Obviously we've got a good healthy respect for our competition. We're staying close to technological developments, but that's it.

We're also very pleased with our technology platform that comes from over 20 years of experience and continuously leading both in innovation and also in markets insight. So again, we're the clear leader here. We're the basis for doctors being able to perform single-visit dentistry.

We're pleased with the near-term innovations, including CEREC Open and the new software that Jeff mentioned earlier. And we're continuing to make significant investments in our R&D portfolio to stay on the forefront of technology.

So again, we're pleased with our position, and again, I think that overall, more attention on the category is going to helpful to accelerating penetration..

Certainly, 30 years of experience, R&D, knowhow and the team we have in place, with not only equipment, but materials today is even stronger for the future for our CEREC..

Okay. Thank you..

You bet..

As a reminder, we are taking one question from each caller in the interest of time. We'll take our next question from Mr. Steve Beuchaw from Morgan Stanley..

Hi. Good morning and thanks for taking the questions. I want to just follow-up in a specific way on the Rest of World piece. And then, just a couple of clarifications. On Rest of World, the result was a little bit below our model. I wonder if you can reflect and I guess, it isn't necessarily have to be specific to Rest of World, on the timing of the IDS.

If you look at the last few iterations of the IDS it was middle of month. You had a couple of weeks in there to complete deliveries. Did the timing of the IDS being close to the end of March, the end of the quarter have any impact? And then I have a follow-up..

Steve, it's tough to say how much timing of the IDS would play, but keep in mind that we had a difficult comp coming in, 7.5% last year and after finishing the year strong. We still believe that the Rest of World will be our fastest growing region. That hasn't changed. We've got 120 countries in the Rest of World.

Asia was slower than we expected, but we expect that, that will improve in the second quarter and make up for the slowness on that. We were pleased what we saw in Latin America growth, even given the restructuring efforts there. So we expect that Rest of World will play a critical role in the future.

I think, clarifying how we're going forward in Canada, that plays a role in Rest of World and our North America will support that and that had an impact, but in general, the offering we have in Rest of World, we expect to continue to generate sales in the back half of the year..

Thanks for that. And I just want to follow-up on Jeff's question actually about equipment trends. I mean, given what you've seen in the DTA data, the consolidated industry data on equipment trends in the U.S.

through the first quarter, how are you thinking about the equipment demand profile, not necessarily in a Dentsply Sirona specific way, but the trajectory for equipment demand in the U.S? Thanks..

Yeah. Steve, it's Chris. First off, in terms of the DTA data, there's no longer any DTA on large equipment available. So from that standpoint, again, some of the market data that may have been available is no longer.

That said as we look at it, it's a little bit tough for us in terms of a barometer for the factors that Jeff mentioned, obviously, with the go-to-market strategy change, but in the quarter not announcing the clarity in terms of exactly what that is, we do think it had an impact on us.

As we look at it, we do think that underlying demand is solid and stable, but it was probably not the quarter to use as the barometer for that..

And again, today, we announced a major change in our go-to-market in the U.S. And this is one that is going to have a short and long-term impact for Dentsply Sirona, and we need to focus on how important that will affect our equipment sales with both in place and our ability for Paterson to finish strong before September.

Keep in mind that as we go into DS World, we'll now have a new message to the marketplace about what's possible for them. And this should make it easier for the reps to be able to sell the product and the adoption to increase..

Thanks a bunch..

You bet..

Thank you..

Thank you. Our next question comes from John Kreger from William Blair..

Hi. Thanks very much. Jeff, just expand a little bit on the comment you made in the call about feeling like you're underpenetrated in the group practices. I think that was mainly a U.S. comment. Is your go-to-market strategy changing beyond adding Schein? If you could just expand on how you're going to push more into DSOs, that will be helpful? Thanks..

Well look first of all, I think, we have a strong practice in the DSOs. Keep in mind, we go through distribution and direct with our specialty products.

That won't change, but we're aggressively going after DSOs by bringing together how we present ourselves with the DSO to make sure they get the full benefit of our clinical education, our 360 programs and have integrated solutions deal with the full facets of what we're able to provide, root to crown, Class II procedures, implantology.

By being able to focus that, we believe we'll have more of an impact in the DSOs. So there's a lot of opportunity for us, because we want to not only improve our share of wallet, but increase the number of DSOs that we're working with. We're already working with most of the largest DSOs.

So it is about putting our organization together, investing in those resources and being able to make sure that the focus is on an area that's growing faster than the market..

Thank you..

Thank you. Our next question comes from Robert Jones from Goldman Sachs..

Thanks for the question. Yeah just wanted to go back to the softer equipment number. The inventory wind-down does seem to be a bit of a moving target.

So I'm just curious at this point, how much confidence do you feel like you have in this revised number? Is that something that you've worked more closely with Patterson to get your hands around? And then just related to that, Jeff, I believe you mentioned weaker retail performance in your prepared remarks, particularly in the U.S.

as something that was a headwind or a drag.

Could you maybe just elaborate a little bit on what you meant by retail performance and how that's separate from the inventory issue that we've discussed?.

Sure. Again, I think that comes back to the clarity of what's happening in the market. Bob, I can't tell you how many reps are hearing that we're imminent to opening up distribution. The distractions that, that has had, which has created uncertainty and uncertainty is never good for a rep, for an organization.

And that had impact in what we were able to sell. I think with this clarity and the fact with our confidence with Patterson and what we've been able to do over the last 20 years with the exclusivity, we can get back to doing what we want to focus on, which is executing and selling the product.

You also have to keep in mind that last year we introduced a new way of thinking about Chairside, with using Zirconia. We came out with the SpeedFire, which also led to changes in our milling unit, wet-dry. Those also had impacts for the prior year on this..

Bob, with regard to inventory – this is Josh, just to provide clarity. So recognize there was a $40 million change year-over-year related to inventory.

That was Q1, right? We talked about an additional $50 million to $60 million coming, right, but for the remainder of the year, a net of $10 million to $20 million, which is to say that there's going to be an offset to that. So what we've said is, last call we talked about $50 million. We're talking about a similar range here.

Again, ultimately retail, it will dictate how much or how little this will be, but we're still in the general range as we're talking about. So it's never a perfect target, but I don't want to give you the impression that it's a moving target. It's still within the same range.

It's just a function of, remember, we talked about this being a tale of two halves in terms of the year. We talked about the first half having a significant headwind in inventory. We talked about strong growth in the back half of the year, right? We reiterated our guidance and so we're just reiterating that same message.

We obviously had the first impact in Q1. You'll continue to see impact in Q2 and you'll get the benefit of the other market or the channels coming on line, which will offset that headwind in the back half of the year which will drive our growth. So the net is in the same realm, right.

Again, we can't pinpoint it exactly, but I don't want you to walk away thinking there's a significant change here, because there isn't..

No there really isn't. Again, the big picture is about the net result for the year. And we haven't changed that. We've said the first quarter was going to be challenged. And actually, it would also be the first half and it was all about the second half.

So I want to be clear that we continue to be on track believing that what we gave the guidance, and that's why we haven't changed our guidance..

Okay. That's helpful. Thank you..

Thank you. Our next question comes from Jon Block from Stifel..

Thanks, guys. Good morning. I'll try to ask both upfront. So first one, Jeff, just your thoughts on capital allocation and possibly getting more aggressive on the share repo. It seems like you're sensing or seeing the worldwide dental market picking up. You've got broader distribution going forward.

You called out several times you expect momentum to increase in the back half of the year and sort of continue into 2018 and you're sitting here on a very solid balance sheet. So just your thoughts on maybe flexing the balance sheet a bit more here in the near-term. And then the second question, just quickly is a lot of moving parts for 2Q.

I mean, you guys have hit on inventory but you also have sort of the ship outs going on from IDS. So curious if you want to give any clarity on the EPS cadence on line and just how to think about the moving parts for the remainder of the year? Thanks guys..

Right. We have a clear buy back in place. We've already deployed over $1 billion in capital – in acquisitions and buy back. We continue to do that. That's an important lever. We have a very strong balance sheet, which we will continue to use. So I don't see that changing. Certainly, that's part of what we've talked about.

We also said that we were going to do $50 million to $100 million per quarter. We did $85 million this quarter. So we're staying on track with what we believe. With regard to the EPS, clearly we don't get into quarterly guidance, but the back half assumes that we expect to have acceleration on that..

Thank you, operator.

Next question, please?.

Thank you. Our next question comes from Steven Valiquette from Bank of America..

Great, thanks. Good morning, Jeff, Chris, Josh and Derek. So I know you guys can't talk too much about the terms of these new U.S. distribution deals, but I guess I first have a question is, will a U.S.

sale of CEREC through Schein be more profitable to you than what CEREC unit profit margin has been under Patterson previously? And then also is Schein going sell just CEREC in the U.S. for Chairside, CAD/CAM, crown restoration, or are they still going to have the option to sell other Chairside crown restoration systems if they want to? Thanks..

Thanks for the question. Again, this is about Schein having our full distributed line. They'll have everything with regard to CAD/CAM as well as our imaging products, our Treatment Centers and our instruments. We're not going to get into margin profile.

Obviously, we believe that this structure is in the best interest of both parties and it's about accelerating growth for both of us..

Okay. And the other quick thing, this is more of a comment than really just a question, but I still don't really get the notion of the Patterson's sales force distraction, that they know they're still going to be selling it going forward. You think they'd want to work harder to lock-in sales before a new distributor comes in.

I don't understand why they'd lay down in this situation but again that's sort of the sidebar comment I guess I'll look forward to seeing you guys at our conference next week and we can hopefully talk about this in more detail. Thanks..

Look, again, until you have clarity in the market, it leads to confusion. And you have to understand that, that is the fact. When Patterson on their call in November announced that they would be opening up distribution with it, that brought certain uncertainty for the marketplace. We feel we've dealt with that.

I mean, we're very excited with what we've announced today with Patterson as well and we think that will have an impact for us. So both Henry Schein and Patterson, coming together understanding what is going to be exactly what we do moving forward will allow everyone to focus on execution..

Okay. Great. Thanks..

Thank you. Our final question comes from Matt Miksic from UBS..

Hey, guys. This is Vik Chopra in for Matt. Thanks for taking my questions and squeezing me in. I just wanted to ask a quick question on the Consumables business, kind of what areas of strength you've seen, maybe specialty versus general products? And what you're seeing in terms of ASPs? And my second question is on gross margins.

How should we think about gross margins heading into the rest of year? And can we expect any expansion over last year? Thanks..

Yeah. Vik, it's Chris. Relative to the Consumables, I mean we have pretty solid and consistent growth really across the various SBUs, if you will, both on the Chairside as well as on the specialties, particularly solid, relative to endo. Again we look pretty solid underlying U.S. sell-through trends which again, we're pleased with.

Europe was very solid from a core Consumables standpoint. So again, I think, that we feel good about how that business is executing. There's a number of new innovations that we showed at the IDS. New products really do drive those businesses pretty significantly, which again we're pleased with what we've brought to market.

And again I think that relative to the margins or the pricing, again we're able to hold price fine. We're able to take reasonable price generally on these businesses. So again I don't think we see any significant change in those competitive dynamics..

Vik, as far as gross margin for the year, we don't get into that level of detail. What I would tell you is that this quarter, margins were impacted by the timing of the merger last year. Remember, last year had the strongest selling month for Sirona, so that gave us a difficult comparison.

We talked about margins year-over-year in terms of operating margins to be similar to last year, but that actually implies underlying growth because again, you'll recall that last year we benefited from that strong selling month. So overall, remember gross margins, you have a lot of moving parts in there between product mix and FX.

And so we'll just talk about the operating margin level for the year..

Thank you. That does conclude today's question-and-answer session. I'd like to turn the call back over to our moderators for any additional or closing remarks..

Well thank you, everyone, for joining us today on today's conference call, and thanks for your interest on Dentsply Sirona. We look forward to seeing many of you at upcoming conferences and of course, we'll update you again on August. Have a good day..

Thank you. That does conclude today's conference. We appreciate your participation and you may now disconnect..