Joshua Zable - Vice President of Investor Relations Don Casey - Chief Executive Officer Nick Alexos - Executive Vice President, Chief Financial Officer.

Steve Beuchaw - Morgan Stanley & Co. LLC Jeff Johnson - Baird Tycho Peterson - J.P. Morgan Brandon Couillard - Jefferies Steven Valiquette - Barclays Nathan Rich - Goldman Sachs Jonathan Block - Stifel John Kreger - William Blair Erin Wright - Credit Suisse Yi Chen - H. C. Wainwright David Stratton - Great Lakes Review.

Good day and welcome to the Dentsply Sirona First Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joshua Zable, Vice President, Investor Relations. Please go ahead, sir..

Thank you and good morning everyone. Welcome to our first quarter 2018 conference call. I'd like to remind you that an earnings press release is available on our website at www.dentsplysirona.com. Before we begin, please take a moment to read the forward-looking statement in our earnings press release.

During today's conference call we'll make certain predictive statements that reflect our current views about our 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 and Form 10-Q lists some of our most important risk factors that could cause actual results to differ from our predictions. And, with that, I will now turn the program over to Don Casey, Chief Executive Officer of Dentsply Sirona..

Thanks Josh and good morning. We appreciate everyone joining us today. It has been an important quarter for me as I continue to meet with our critical customers, KOLs, practitioners, and most importantly our thousands of dedicated employees around the world.

Throughout all these conversations I am reminded that this is a great category and we are well positioned in it. We have powerful brands, important technology and a truly global footprint.

Our view and those of our critical stakeholders is that the basic fundamentals of the category remain positive, that there is a healthy underlying demand for dental products and the innovation is rewarded, and new technologies, many of which of ours are really advancing the profession.

It is clear that we also need to move our focus from putting two great companies together and begin to focus much more on the customer and how we deliver on our role as being the dental solutions company. One of the final critical observations from the past three months is that the market is evolving particularly in the U.S.

It is very clear that Dentsply Sirona will need to adapt to these conditions in order to consistently grow faster than the market. This is highlighted by results in the quarter. In Q1 we saw solid performance in many regions and businesses weighed down by significant headwinds in the U.S. technologies and equipment businesses.

On our first quarter call we said that we will judge our success by our ability to return the company to reliable topline growth and improve our margins, that our growth program would be built around three areas; improving our sales force effectiveness, delivering our innovation agenda and focusing on growth in the countries and regions that are seeing rapid economic development.

During this quarter significant pro progress was made on these priorities, but they are not quick fixes. We also indicated that a prerequisite to growth would be improving the performance of our technologies and equipment business in the U.S.

To deliver against that objective, we have developed and are investing in strategies and programs designed to help us own the responsibility for demand creation. Comprehensive in nature, these efforts will augment those of our value to dealer/partners.

Highlights of the program includes stronger marketing and communication programs and a commitment to hiring 50 additional reps beginning in the second quarter.

This program will also include aggressive supplemental selling efforts that will involve multiple parts of the Dentsply Sirona field organization as well as some other dealer initiated programs. It is designed to reinforce the powerful potential of these products and help our dealers accelerate sales.

Based on what we have seen around the world, these products have a lot of runway in front of them. They deliver remarkable patient and dentist satisfaction and we expect them to be a strong source of growth in the future.

Beyond this, our general sales force effectiveness program continues to highlight the significant upside that exists across the entire business.

We are in the process of assessing and augmenting the skills, capabilities, and performance of our over 4000 sales people globally by rolling out programs like salesforece.com as well as other tools including clinical and product training as part of a broader program designed to improve our go to market capabilities to deliver consistent above market growth going forward.

A key differentiator for Dentsply Sirona is our commitment to clinical education. While some talk about it, we delivered. Later this month, we will open a state-of-the-art training center in Charlotte, North Carolina that will help us reach over 10,000 dental professionals per year.

Between this and our European center in Bensheim, Germany and over a dozen satellite facilities around the world, we will directly talk to over 25,000 practitioners a year, supplementing our continuing education efforts that reach over hundreds of thousands of dentists annually.

We look forward to welcoming you to our new Dental Academy for an Investor Day on September 27, so you can see this impressive facility first had. The second part of our growth initiatives for improving our topline will be innovation. We spend over $150 million annually in R&D and believe that we have a very robust pipeline.

Our laser team is spending a considerable amount of time with the teams to make sure that we are accelerating major innovations that can drive share and margin. Our efforts also go beyond internal development and include acquisitions. As you saw, we closed on the OraMetrix transaction last week and we are really excited about this acquisition.

This is much more than a clear line program. It combines a comprehensive software and manufacturing platform that can create real root to ground [ph] treatment options for the dentist. OraMetrix uniquely integrates digital scanning, 2 and 3D x-rays to create customized individual treatment plans for orthodontic patients.

The software can plan cases using brackets and wires as well as clear liners to offer the clinician flexible and broad range of treatment options. This past weekend at the American Association of Orthodontists Dentsply Sirona launched a full clear liner and integration of OraMetrix and Omnicam.

The reception was very positive and shows the power of Dentsply Sirona equipment, software, and clinical education offerings. Across our entire portfolio we expect to launch over 30 major products this year and expect to be very competitive at the key idea show in March of next year. Finally we said that we want to grow in growing markets.

It is important to note in this most recent quarter critical markets in Europe and Asia showed solid growth in this past quarter. We expect the growth to not only continue, but to pick up throughout this year. We believe we have the right products, a solid commercial footprint and will make the investments necessary to build sustainable growth.

Examples of these investments represented robust clinical education and creating meaningful training facilities in places like Vietnam and Indonesia or expanding our selling organizations in high potential markets. As I stated on our last call in addition to growth the second area that is important to me is improving our margins.

There are several ways to do this and one of the most critical is cost initiatives. Our entire leadership team is committed to the goal of saving $100 million by 2019 and we feel good about the progress we have made.

It has not all translated into operating margin expansion this year as we are looking to make investments like OraMetrix and our program to accelerate our technology and equipment businesses. As the company continues to address the need for additional capabilities, we want to have the flexibility to make those types of decisions.

Going forward though we expect to deliver savings in areas where we can operate at scale and improve our competitiveness and cost positions.

Whether it is procurement, manufacturing, logistics or other areas of SG&A the team here is very focused on taking full advantage of our scale and we have made significant moves in this area that will begin showing up in 2019. I will let Nick us through some of those key initiatives a little bit later.

The final commitment I discussed in that first call was a desire of this management team to be transparent and accountable. As you saw in the press release yesterday, we are adjusting our guidance to reflect what we saw in the first quarter and more importantly outlining investments and actions we are taking to return us to growth.

Our updated range reflects our full year expectations and provides us the flexibility to make the tough decisions that will help us build a solid foundation for future growth. It is also important to note that our Board of Directors increased our share buyback authorization by $500 million bringing our total authorization to $1 billion.

This underscores our commitment to our shareholders. As we go forward I am truly grateful to our tremendous employee base and their unswerving commitment to our company. It is their passion and desire to win that makes me believe that we will return this company to sustainable growth going forward.

Now, I'd like to turn the call over to our CFO, Nick Alexos, who will provide a more detailed look into our results and our underlying assumptions for 2018 outlook.

Nick?.

Thanks Don and good morning everyone. I want to echo Don's remarks about the range of opportunities and the progress we are making. For the first quarter, constant currency total sales decreased 1.1% driven by technologies and equipment which declined by 1.7%.

The technology and equipment segment was impacted by approximately $8 million of dealer inventory reductions in the order and we continued to target $40 million of such reductions in 2018. Consumables declined slightly this quarter driven by shortfall in the U.S.

We believe that the consumables grew at a better than market rate in Europe and the rest of world. Regionally, the U.S. was down 7.4% driven by declines in technologies and equipment. Consumables in the U.S. declined as they were impacted by a number of factors.

We had some orders pulled forward in Q4 2017 and added strong year-over-year comparable in our instrument business. We've seen improvement in sales in the recent months and are confident in our rest of the year growth rate. We continue to view the U.S.

dental market as stable and we expect the initiatives that Don spoke about will improve our performance in the rest of 2018 and provide momentum for 2019. In Europe, our low sales growth was impacted by consumables which had a difficult comparable due to the timing of the Easter holiday this year.

In Europe the technologies and equipment business faced a difficult comparison due to last year's IDS results and had a slight impact by the dealer inventory reductions in that geography. We are seeing solid demand for technology and equipment products in Europe.

In the rest of the world, constant currency growth rates of 5.3% was driven by both consumables and technology and equipment performance. We believe this reflects the exceptional strength of our products, brands, clinical education, and direct sales and marketing efforts.

As Don mentioned, driving growth in these developing geographic markets is a priority. We are confident our overall sales performance will improve sequentially as we move through the year, but we have reduced our revenue forecast to reflect the near-term underperformance of the U.S. technologies and equipment business.

We expect growth in both Europe and the rest of the world as I mentioned to continue. Turning to margins for the quarter, adjusted non-GAAP operating margin declined to 14.5% versus 16.6% a year ago as lower sales worked against our fixed cost and product mix weighed negatively on margins.

Also as we mentioned on our last call, we are seeing some foreign exchange headwinds due to our non-dollar base costs. We are not seeing any significant change in our overall pricing environment however. As Don mentioned, we are on track for our cost savings which will ramp up throughout the year. We plan to see margin benefits in 2019.

Q1 adjusted EPS was $0.45. Cash flow from operating activities was $55.2 million down 33% percent versus prior year which was impacted by Q1 operating results and an increase in our own inventories. We are aiming to reduce our current inventory levels by at least $30 million by the end of the year.

As we said operating cash flow is an important indicator of the health of the business and an area we can improve. CapEx was $35.8 million for the quarter up from last year's $31.1 million. We continue to expect the CapEx for the year will be similar to 2017 and we will monitor our spend to ensure that we are delivering appropriate returns.

On May 1, as you've seen, we closed on the acquisition of OraMetrix for $90 million in cash with an additional potential earn out payments of $60 million. We expect to hit the milestones and pay the earn outs in 2018 or by early 2019. During the quarter we were unable to repurchase any of our shares.

The filing of our 10-K coincided with the blackout period. As Don mentioned, we have increased our share buyback authorization to reflect our commitment to returning dollars to shareholders. Now turning to guidance, our guidance includes the following assumptions.

Full-year constant currency sales growth is now 2% which reflects the lower Q1 results and implies around 2.5% internal growth rate for the remainder of the year plus about $20 million of revenue from OraMetrix. At the current exchange rate this translates to approximately reported revenues in the range of $4.2 billion.

As I mentioned, our revenue assumptions assume the $40 million targeted reduction in dealer equipment inventory which is costing us about 1% internal growth rate and we are on track to reduce most of that in the first half of 2018.

Please note that given the targeted dealer inventory reductions in the first half will have an impact on our Q2 results and therefore Q2 will be at a lower internal growth rate than the full year amount.

We expect 2018 full-year operating margins to be down between 100 and 150 basis points versus last year which is net of the targeted cost reductions that we will achieve. This is a function of the FX headwinds in our cost, higher operating costs and lower sales, and higher investment spending related to the gross initiatives in the rest of the year.

As Don mentioned earlier, we are committed to delivering $100 million in operating cost savings by fiscal year end 2019 and we're on track to realize $50 million of actual savings this year. I'd like to take a minute to put some context around our cost savings effort and provide some details.

During the first quarter of this year we successfully closed our dental handpiece manufacturing operations in Des Plaines, Illinois. The production was moved to a much larger handpiece manufacturing operation in Bensheim, Germany to leverage existing infrastructure and more advanced production technology.

In Q3 of this year we will complete the consolidation of our German distribution facility into our European distribution hub in Venlo, the Netherlands. This is yet another project that will drive savings beginning in 2019. We've also been consolidating into a distribution center here in Lancaster, Pennsylvania.

These initiatives are in line with our strategy to streamline our global distribution network and our supply chain. These are just a few examples of projects that will improve the operations of the business and drive cost savings.

Given the sensitive nature of some of our additional projects we will continuously update you on them as they are implemented. On taxes, our non-GAAP effective tax rate for Q1 is 21.4%, a slight improvement from the targeted 22% we initially expected. As we stated on our last call, this rate is based on the changes in the U.S.

tax legislation which reduced our foreign tax credits and limit our abilities to defer foreign tax income. Please note, only 30% of our revenues are from the U.S. Lastly, our guidance does reflect the use of excess cash in 2018 to buy back stock.

Based on the timing of these purchases, we may incur limited expense that would partially offset some of the EPS accretion in 2018. There are clearly many variables to our EPS guidance throughout the income statement which we manage.

As a result of these variables we revised our guidance of our non-GAAP EPS to a range of $2.55 to $2.65 from the previous range of $2.70 to $2.80. This compares to the $2.66 realized in 2017 which had the benefit of the lower effective tax. The primary drivers of the $0.15 difference in the revised guidance at the midpoint are as follows.

The acquisition of OraMetrix and subsequent operating expenses to grow that business will cost us about $0.03 to $0.04 of dilution to the adjusted EPS. Our lower sales outlook and newly identified OpEx investment, net cost reductions, will impact our adjusted EPS by approximately $0.11 to $0.13.

Offsetting these is a slightly better tax rate that should add about $0.02. Overall, although we are disappointed to not have foreseen the shortfalls in Q1, we're seeing good progress on our sales strategies and cost initiatives in our guidance reflect these key decisions. I will now turn the call over to Don for some final remarks..

Thank Nick. I want to end by reiterating that we understand the importance of our credibility with our investors and take this very seriously. As we look at the first quarter results and the action we wanted to take we made a decision to invest in the long-term value creation. This business is stable but has been stuck in neutral for two years.

To reignite growth we are taking the necessary actions even though they will weigh on this year's results. We would expect to exit the year with the normalized run rate of growth with opportunity to accelerate the topline growth next year. We will leverage our cost savings going forward to drive margin expansion and faster earnings growth.

These actions will enable long-term sustainable top and bottom-line growth which will create significant value for our shareholders. We expect to see improvement as early as next quarter and promise to update you on our progress as we move throughout the year. We will provide more details on our long-term plans at the analyst day in September.

We are eager to host you at our new Charlotte training facility to help make some of the investment tangible for your and we encourage all of you to join us. Before closing, I want to underscore our team's optimism about our future. This is a strong company that is well positioned.

We are taking important steps today that will enhance our growth for years to come. I'll now turn the call over to the operator for questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Steve Beuchaw with Morgan Stanley..

Hello and good morning and thanks for the time here. What I'd like to do is to the extent that I can, make sure that I have a little depth of understanding of how you see the hardware launch particularly in digital playing out over the next year or two. So it's a two-parter, one for Don, you proactively addressed IDS 2019.

As you lookat IDS 2019 as those of us who covered Sirona for a long time and we think back the days of Omnicam launches and DSL [ph] and it's been a few years.

Are those reasonable predicates for us to think about the scale or the opportunities you see for IDS 2019? And then just a housekeeping item also related to hardware for Nick, is it fair to say that now that we're five months into the year and you've reiterated expectation for the $40 million that your confidence in the 40s is going higher not lower? Thanks so much..

Yes, I'll go first. Thanks for the questions Steve. You know obviously the technology and equipment business it's important that we play our cards very close to the vest, otherwise you wind up seeing sales deteriorating as you get closer and closer to IDS.

I would tell you is that the vast amount of time we're spending in our R&D efforts right now are really focused on digital dentistry. We continue to think there's a lot of runway there.

We recognize that our products need to be updated not only from a hardware perspective, but also software and its ability to connect with the dentist as well as some of the practice management systems.

So we're focusing on making sure that A, we've got good hardware, B, that our software is really updated and then see if its connected and works well in all the workflows around the world.

So without trying to tip our hand we're pretty comfortable that we got a robust portfolio we think will be very competitive at IDS, but we also want to be careful about basically postponing any sales between now and that..

Steve on the $40 million the answer is yes we feel very confident. That's a number that we can largely manage. It is an important number not only for us but for our dealer/partners and as I stated we expect most of that to be realized through the end of Q2..

Next question?.

[Operator Instructions] We’ll take our next question from Jeff Johnson with Baird..

Thank you. Good morning guys.

Can you hear me okay?.

Yes, Jeff.

How are you?.

I’m well Don, thank you. So couple questions here. Let me, I guess just one question. Nick I did not hear a U.S.

Technology numbers simple math would have it down in the double digits just can you confirm or give any color there? But more importantly Don, on that point can you bucket for us and I think I've asked you this before but just kind of as technology declines in the double digits in the U.S., how much of that is just the disruption that is out there in your dealer channel, how much is out there or just kind of end markets, where they are at in the U.S.

growing or not growing, and then how much might be a structural shift? If some dentists move away from CAD/ CAM or maybe more held in on CAD/CAM today because of growing popularity of DI, do you have the right product there and how much is that more so that even the dealer disruption impacting the U.S. number? Thank you..

Hey, Jeff, it's Nick quickly, as you know we don't give by geography, by segment growth rates, but I think, you can get a sense that the proponents of our disappointment is in the U.S. Technology business therefore it performed less than the consumable business which is why we're doing some of the things that Don talked about..

Yes and Jeff that's a complex question and you've been consistent in asking it, so let me try and break it down.

I mean obviously, the most significant change in our go-to-market strategy over the last two years has been going from a proprietary relationship with one dealer into the fact that there are multiple dealers that now carry our equipment in North America, and there's obviously been transitions at those dealers.

Look, long term we feel very good about what the dealers are doing. We feel they are integral to our go-to-market strategy and provide real value to us and we're going to continue to work with them.

That being said, a lot of our conversations with the dealers and obviously we talk to these guys a lot, has been - they really would like us to prime the pump a little bit more and you can see the programs we're putting into place are really designed in my opinion to go and create more awareness, more demand creation, because I disagree with you a little bit that, people are moving away from CAD/CAM.

I actually - we've done a lot of work with dentists that have this product. They think it is terrific and are highly satisfied.

What we need to do is, convince more dentists that the benefits to the patient in terms of one visit dentistry as well as the absolute great product they get when it's actually personalized, personally developed for them right there at the dentist chair side is a great outcome.

We need to convince more dentist that that is a viable opportunity and it's one that's not only going to be important for their future growth, but also delivers real value. When you mentioned DI, look I think our DI strategy has been weak to be honest with you.

We've now spent a fair amount of time putting together what we believe is a very competitive program that we're in the process of launching. As a matter of fact at the AAO show this last weekend you're beginning to see stuff like OraMetrix where we're beginning to use Omnicam as a DI device that will help with OraMetrix.

So we believe that our product is terrific. We need to actually go represent that it could be the beginning of a journey to chair side dentistry, so start with Omnicam and move up. And I don't think we've done enough to support that. I think we will be doing a lot more as we go forward.

But ultimately what we and we get asked this a lot, what we see around the world where there's still higher penetrations of CAD/CAM than what we see in the U.S. is we believe it's up to us to create demand and make this product more relevant and prime the pump..

Next question please?.

And we'll take our next question from Tycho Peterson with J.P. Morgan..

Thanks. I want to ask on consumables, I think people are expecting the technology is fine, but consumables were soft.

You highlighted the order go forward in the fourth quarter and a difficult comp, but just curious, can you talk little bit more about, how you're feeling on consumables exiting the quarter and have your assumptions changed for the remainder of the year on consumables? And then just stepping back, you did okay, got lowered the numbers on the quarter and you haven't changed your destocking assumptions so can you maybe just talk a little bit about what did change in guidance for the remainder of the year?.

Yes, so Tycho on the first point, I'd say overall we're seeing good signs on consumables and really view the comparative percentages, more as a result of the pull forward and just the year-over-year comparables as we noted a little bit on the instrument side, so overall we feel pretty good. We're not seeing any real concerns in the recent periods.

In terms of the deal reduction that is our target. We feel that's a good number and we think that on top of that we will be able to achieve better performance in the technology and equipment business globally as well as hopefully in the U.S. during the rest of the year. So we're not changing our dealer inventory target number..

Next question?.

And we'll take our next question from Brandon Couillard with Jefferies..

Thanks, good morning.

I guess following up a little bit on that question on consumables, any color you can give us sort of by product line give us a sense of how Implants has continued to perform in particular and perhaps an update on where the sales force is today so far as cross selling or their ability to score wins from selling work flow solutions?.

Yes, thanks Brandon for the good questions. First, what we're seeing in consumables obviously we don't break out the lines. We've mentioned a couple times that there was a comp on the instrument business related to the CDC [indiscernible] last year about how to deal with infection prevention, so that's the first point.

Second point on implants, we're starting to see signs of life in our implant business. We expect that we're going to be announcing a sequence of leadership changes in the not too distant future as the leader of that business retires and we believe that we've lined up a very effective leadership team. We just made a change in the U.S.

that we think is essential to begin to propel that business going forward. So right now with the implant business, again we feel that we've got a pretty good lineup of products. I don't think we've done a particularly good job on delivering our message and capitalizing on all that we have to offer.

You bring up perhaps the most important point in my mind at the end there in terms of how are we doing in the cross selling.

It is interesting when we begin to see stuff like OraMetrix and Omnicam, when when we begin to talk about our implant business with some of the DI products that we actually have we get very, very excited about it and we've seen in different parts of the world pockets where this works well.

What we haven't been able to do and when we talk about sales force effectiveness is how do we institutionalize that and make it systemic, how do we make sure that everyone in our Endo sales force is conscious of what equipment is used in that doctor's office.

And as such, when we talk about this idea of sales force effectiveness, one of the key pillars of that is how do we cross sell.

So I would say that we are in a very, very early stage, but one of the great promises of putting Dentsply with Sirona is the idea that we will have a complete portfolio that we will be able to talk to a dentist across a number of different procedures and it's up to us to actually deliver a sales force that can help that dentist think about procedures, think about how it works into their workflow and we can do that uniquely because we're going to be bringing them a full portfolio of products that our reps can talk about.

So I would say we are seeing signs that this is a very positive development around the world. We need to institutionalize that and that's a critical priority in our sales force effectiveness program..

Next question?.

And our next question comes from Steven Valiquette with Barclays..

Thanks. Good morning Don and Nick. Thanks for taking the question. Couple for us, I think first, I think Nick in your prepared comments, I think this was in relation to equipment sales.

I think you made a comment about there were better trends in more recent months, I was wondering if may be you can just and get a little more color on what you were seeing in that regard?.

Well, specifically exactly that Steve we have seen better trends in recent months. As a matter of fact I was at the AAO this weekend and just as Don mentioned, I think people are seeing the value of our Omnicam unit in a DI setting and we're seeing good momentum on our broader Chairside business as well, so exactly that Steve..

And we'll take our next question from Robert Jones with Goldman Sachs..

Good morning. This is Nathan Rich on for Bob this morning. Don, you talked about bringing on the 50 additional sales reps, I think largely on the equipment side in 2Q. Given that you do sell through distribution partners in the U.S.

as well as a number of other markets, can you talk about what the opportunities are for your reps that kind of come on and have an impact on sale rates on the equipment side and how do you expect them to compliment the selling efforts going on at your distribution partners?.

Yes, thanks Nathan.

Look when we think about the technology and equipment business you have to go through a couple phases where there's obviously awareness create awareness and interest in the products, then there's a qualification, then qualification you usually need a demonstration to get people excited about what the product can do and how it would work in their office and then basically you need to close.

The program we're putting together as I did we're trying to identify ways that we prime the pump and we create more awareness and interest. Then as we begin to qualify them and want to do the demonstrations we're in a position right now by adding reps that if there is a need for anybody to get a demonstration immediately we will be right there.

So we're not totally reliant on when can we get this rep or that rep from this company in there and do the closing.

The other thing that we want to talk about is, we think that there are places where there's a great conversation to be had with large group practices some of these big market DSOs that today we're not covering as aggressively as we should be, where we can actually bring the message of what Chairside dentistry, what some of the advantages of tone BMRs, they begin to look at different procedures that they can do within their DSO and we're not covering them today so we want to cover that.

So we are looking at the reps principally as helping immediately qualify and do demonstrations as well as reach people that we haven't been typically focused on in terms of some of the kind of the mid market DSOs and other large group practices where we think our Chairside message should be extremely relevant and should have real economic viability for them..

Next question?.

[Operator Instructions] Well take our next question from Jon Block with Stifel..

Hey guys good morning. I'll ask one question two parts though. So just first talking about value but handful of good thing for ’19 Don you mentioned accelerating revenue growth there's opportunities in OpEx.

How do we think about gross margin? Nick, if emerging increases as a percent of revenue, I guess Nick is there that long term opportunity in gross margin as well? And then just a follow up on DI and I really don't mean to sound too aggressive, but it does seem like Sirona, the innovator if you would embattle [ph] was really behind on a critical DI product cycle and DI is out there in a lot of places were sort of sub $30,000 and others are bundling it.

So can you guys be a little bit more specific on what you're going to do there to better compete, is it price or bundling you talked at that would be very helpful? Thank you..

So I'll go quickly and I appreciate the double questions, sorry I didn’t give Steve [indiscernible] the opportunity earlier, but so I would say that we view the opportunity to leverage our fixed costs as very real, obviously that worked against us in Q1 given the lower sales level, but we view that as an opportunity.

And then secondly, as I did highlight some of the things that we're doing we'll get directly to reducing our operating cost structure like consolidating distribution centers in Europe, in the U.S. as well as to some degree manufacturing facilities which obviously take a little bit of a longer lead time.

So we do see operating leverage both at the gross profit and the SG&A level over time and that's clearly part of our cost savings as well as where we're looking to consolidate operations..

Yes and Jon again well played on the double question. Look on the DI product cycle, first I would debate a little bit.

We think our Omnicam product is terrific when used as a DI and actually one of the things that we are now talking about extensively internally is let's get Onmnicam out aggressively because we believe that that's the beginning of the journey that will take people to Chairside dentistry. And again we think your Chairside dentistry is really important.

It's got economic benefits that are still very important to the dentist and to be honest in a world where people are time constrained, doing a one visit crown procedure we think is very viable.

But I would agree with you that we probably have been a cycle slow in terms of marketing our product is DI and you mentioned that there are people out there sub $30,000. I think the actual price is less relevant than how they're going about it and in terms of let's get an [indiscernible] out and monetize that on clear liners or some other ways.

We believe we have a first a really competitive product. Second, we think that we actually have a portfolio that can help make that very, very relevant whether it's through incentives to use our implants with our equipment or our equipments with implants.

We believe we have a lot of opportunities that we're again, we're starting to push around the world with a reasonably good level of success and that is a high priority for us to get after in the back half of the year. So we have spent a lot of time talking about what we think DI is.

Ultimately we think, A, we have a competitive product, B it's important get that product out more broadly because we believe it’s the beginning of a journey to Chairside dentistry and C, we believe that we actually have a portfolio that would allow us to combine our Omnicam as the DI product with other products in our portfolio that we think should be very, very relevant to practitioners all around the world..

Next question?.

And our next question comes from John Kreger with William Blair..

Thanks. Don, I think at the beginning of the call you talked about an evolving market particularly in the U.S., can you just go back to that and expand on it? What sort of structural changes are you seeing in dental particularly in the U.S. and what do you need to do to sort of get out in front of those changes? Thanks..

Yes, thanks John and what I was referencing look, if you actually take a big step back over the last few years, two years ago there was Sirona dealing with a single distributor, then we merged and we did Dentsply Sirona, obviously there's been some changes with Paterson [ph] and obviously the market evolved to the point where there are now multiple dealers carrying multiple pieces of equipment.

So you go from where the market was relatively clearly defined in terms of what everybody's role was in terms of selling Sirona equipment to today obviously our dealers carry multiple lines of equipment and right now some of that activity that they are expending goes to explaining the differences between one piece of equipment and another.

There is not then in my opinion as much effort spent on how are we priming the pump, how are we every day trying to bring 100 new doctors into Chairside dentistry and actually getting the demo. So in our conversations with our dealer partners they have been both very clear that they are excited about our equipment.

Again, we think our equipment is second to none whether that's in CAD/CAM whether that's in the 2D or 3D XRAY cone beam areas or whether that's even in DI. What we need to do is we need to take more ownership we're creating ultimate demand for the product. We need to be creating the category of which we still have by far the largest share.

So what you hear us talking about John, as we go through this program is again we sat there and said we're talking about marketing programs that are going to enhance communications deliver and talk about the benefits of these specific products.

We're going to be working with the dealers from how do we take that interest and begin to qualify some of these opportunities more aggressively and then by having additional people on the street, we think we can get to a more personalized demo very, very quickly where we can now bring them down to our Charlotte facility and work on closing.

So again, two years seems like a long time, but it's really not. We've gone from a single company with a single distributor to a merged company that's now dealing with multiple dealers carrying multiple products.

And I think over the - our expectation is we, in our case as we are now well through the idea that we've done a merger and we're now focusing on our customers, we expect the dealers as they get more comfortable and proceed to getting very used to selling multiple pieces of equipment, we think the market will return to something that looks a little bit more like it has historically.

The biggest difference in our mind is that we're going to be taking a lot more ownership and spending in our minds correctly to kind of prime the pump in a way that we're going to increase demand for whether Chairside dentistry, whether it's cone beam or whether it's DI..

The other thing I would add John is you’ve also seen with the digital technologies that we’ve led with in a very specific manner expanding the ability of general practitioners to do more specialty procedures. Certainly that improves the revenue in their practice.

I would say that that also requires a high level of clinical education and as Don has highlighted, our new facility in charlotte is going to compliment our other facilities around the world to really be a leader in that clinical education which we think is very important content to have as part of what we’re bringing to the market.

So I would say, you’re seeing more and more GPs who want to expand to specialty procedures, but they need the training and will leverage our products is another key trend that’s evolved in the marketplace that we hope to future capitalize on..

Next question?.

And our next question comes from Erin Wright with Credit Suisse..

Great, thanks so much.

I guess what if you've been able to accomplish in adjusting your sales force incentive structure to drive whether be it digital, standalone digital impression or better cross selling and what can you implement near term on that front and when will that really materialize? And a follow up to an earlier question what sort of - just more broadly, what sort of topline growth do you need to have or to see any sort of meaningful margin leverage across your business over the longer term on a more normalized basis and how do you envision that longer term topline growth for the business? Thanks..

Yes, thanks Erin. On cross selling, look I’d say it's really early.

What we're doing right now is we're learning, we're painting or creating case studies that show us that we can in fact do that whether it's some of our on the Omnicam with implants, a program that we're actually executing in a couple of countries around the world right now or whether it's stuff that we just saw at orthodonture with Omnicam, with some of the stuff we're doing or metrics, where we're working through how that actually works, how we assign credit to what sales organization and how do we incentivize people to go after it.

One thing I would tell you that we are going to be able to do relatively, quickly and that should help us is we have people in dentists office all around the world virtually every day and right now they're really not in an information gathering mode.

For perspective, if somebody goes in to talk to implants we'd never really ask them, hey what equipment is in there or if we have an equipment rep, who's going into a heavy implantologist, or by the way what implants they are using.

And we haven't gathered that information Erin, and we're in the process of converting that into one of the basic pieces of work that all our sales people will be doing not only in the United States but all around the world and then capturing that, processing that in such a way that becomes usable information is critical to us which is one of the reasons I referenced salesforce.com.

So when we start talking about CRM and other things it becomes important to us. And I'll let Nick talk about the topline and the way to get margin level..

Yes, Erin we’ve said in the past that we believe given our platform of technologies and global footprint that we should grow better than the market, so I'll leave it among all of you on the phone to figure out exactly where the market's growing globally, but we believe we should grow better.

And I also noted we're not seeing any real price erosion across our categories.

So when you combine those two, we firmly believe that that targeted growth rate will achieve operating margin, gross margin improvement, but I'd like to defer to our Investor Day meeting in September after we've had a chance to really call us all our thoughts and develop our strategy to give you guys a better view in terms of our long term revenue target..

And margin target Nick..

And margin target, yes..

Next question?.

And we'll take our next question from Yi Chen with H. C. Wainwright..

Thank you for taking my question.

By hiring additional sales reps starting in this quarter do you - does that suggest that you intend to rely less on sales force at Patterson and Henry Schein to drive topline growth?.

No, again we look at hiring the additional reps as well as pushing through programs in a number of different areas as more priming the pump and focusing on demonstrating the product and basically moving people from the idea of interest to more qualified leads which the Patterson and Henry Schein reps will take from there.

Again, we've said it we believe that our partners are delivering value and are essential to how we view our go-to-market strategy..

Next question?.

And we'll take our last question from David Stratton with Great Lakes Review..

Good morning. Thanks for taking the question.

When we look at pricing you mentioned it was stable for the quarter and I was wondering if you could give some color on expectations as we move through the year and whether or not the Inventory build that you're working to take down will be impacted at all by that?.

Yes, I’d say David. Thanks for the question, but we do not see any change in the pricing environment for our products nor do we see the inventory reductions to have any impact on that overall environment. So we expect to work on the inventory as we've discussed and pricing to remain stable for our full range of products..

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Go ahead, you can you conclude. I was just going to say thanks everyone for joining us today.

We look forward to speaking again in August at the end of our Q2 with our Q2 results and we're also again very excited about the opportunity to have everyone come down to Charlotte and see what we think is a truly important initiative live and up close, so again thank you and I hope everyone has a great day..

And that does conclude today's conference. Thank you for your participation. You may now disconnect..