DENTSPLY SIRONA Inc (XRAY) 2006 Q1 法說會逐字稿

Good morning.

My name is [LuAnn], and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Dentsply first quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question-and-answer session.

[OPERATOR INSTRUCTIONS]

Thank you.

Mr. Kunkle, you may begin your conference.

Thank you, [LuAnn], and good morning, and thank you, all, for joining the Dentsply first quarter 2006 earnings conference call.

My name is Gary Kunkle, and I am the Chairman and Chief Executive Officer. Also with me today are Bret Wise, our President and Chief Operating Officer, and Bill Jellison, Senior Vice President and Chief Financial Officer.

I will begin today's call with some overview comments regarding our first quarter results and our overall business, and then, before turning the call over to Bill, I will conclude with some remarks regarding our outlook for the balance of the year. Bill will then take you through a more detailed review of the P&L and balance sheet, and finally, we will all be pleased to answer any questions you may have.

Before we get started, it's important to note that this conference call may include forward-looking statements involving risks and uncertainties. These should be considered in conjunction with the risk factors and uncertainties described in the Company's most recent annual report on Form 10K, it's subsequent periodic reports under Form 10-Q, press releases, and conference call transcripts filed with the Securities and Exchange Commission. This conference in its entirety it will be part of an 8-K filing and will be available on our website.

By now, each of you should have received a copy of our first quarter earnings announcement that we released yesterday after the market closed.

Our reported sales during the first quarter were $431 million. This represented an increase of 5.9% as reported and an increase of 3.9% if you exclude the precious-metal content. This increase of 3.9% broke-out as follows -- our base business growth was plus 6.4; foreign exchange was a negative-3.5; and acquisitions was a plus 1%.

The geographic base business growth, and again, this is excluding precious metals was as follows -- the United States was 1.2; Europe was 13.2; and the balance of the world was 5. As you look at the total base business of 6.4, this was led by really strong performances in our other orthodontic and implant businesses, and high single-digit growth in our lab business. Just as an additional note, the orthodontic and implant businesses have now shown consistent high growth for Dentsply quarter-after-quarter, and as a result, they are among our highest priorities for sales representative expansion.

Looking specifically at the United States, as I stated before, the U.S. internal growth for the first quarter of 2006 was 1.2, which at first glance, was disappointing. In analyzing the underlying cause, however, there were two major contributors to the lower growth, both of which are expected to be isolated to the first quarter only with no continuing impact going forward. These two items were as follows -- first of all, there was a multi-million dollar purchase, or stocking order, if you will, of Oraqix from OraPharma the first quarter of 2005. This was the first quarter launch for Oraqix, which, obviously, was not repeated in first quarter of 2006. As you may recall, there are marketing partners for Oraqix in the United States. All subsequent orders to the initial stocking order appear to be replenishment orders, therefore, we don't see this having any impact through the balance of 2006.

Secondly, in looking back at last year, there was a considerable difference in the dealer purchases of our restorative products in Q1, '06 versus Q1, '05. Restoratives is the largest single category of products that we sell through distribution in the United States. The dealer purchases of restoratives in Q1, '05 were considerably larger than the reported sales from dealers of those products for the same period. Upon reviewing this in hindsight, we believe this resulted from receiving large orders from our dealers in late December of '04, which was just prior to an announced price increase. We did not get these shipments out the door of our distribution center until Q1, '05, thus this inflated the purchases for that period and added to the abnormal quarterly comparison for this large category.

As we look at Q1, '06, the reported sales of restorative products to dental offices by our distributors is among the highest quarters we've ever had for restoratives. This gives us reassurance that the end-user demand for these restoratives remains strong, and that we should expect a more normalized buying pattern from our distributors for these products as we go forward.

On a more positive note, we continue to see high growth in the specialty groups of orthodontics and implants and good growth in our crown and bridge laboratory products, which is led by our Cercon all-ceramic products.

Moving on to Europe, as I mentioned earlier, Europe's base business growth for the quarter was 13.2%. Like our overall growth, Europe also saw strong sales in both orthodontics and implants, adding to this was strong growth in our lab business, which was led, again, by Cercon, our all-ceramic products for crowns and bridges and, of course, a recovery of the dental market in Germany.

The first quarter of 2005 marked the beginning of the negative impact of the changes in the dental reimbursement in Germany, and we should note that the first quarter of 2006, marks the beginning of the recovery from those changes.

As we look at other markets, Asia grew 13.7% for the quarter. This was led by strong growth in China -- and I should say Mainland China -- India, Philippines, and Hong Kong. Latin America had base business growth overall of 8.5%, and this was led by strong performances in Columbia and Chile.

Just some comments on some other areas of interest.

The anesthetic business, as you will recall, we announced in February that we would be closing our dental injectable anesthetic plant in Chicago. We will be selling the facilities and pursuing long-term supply agreements to replace the production that was scheduled for this plant in 2008 and beyond. As a result of that shut-down and the elimination of corresponding associated costs with it, we increased our guidance by $0.06 to $0.08 for 2006. The ultimate benefit of keeping the plant open was expected to be between $0.10 and $0.12,, but, of course, this benefit would not begin being realized until 2008. We continue to believe that we can accomplish that goal and expect to show incremental improvement between now and 2008 with our goal of $0.10 to $0.12 ultimately being realized.

We have shown the manufacturing facilities to several potential buyers and are having discussions with others. We have also had and are having numerous discussions with potential long-term suppliers. Because this process is not complete, I can't offer too much detail as we are in continued negotiations. I can offer, however, that we are very pleased with the progress, and we're optimistic about the outcome, and we'll keep you updated as we proceed.

Some comments on new products: There have been several new products that have been launched during the past several months. I will highlight just a few for you.

I mentioned during our last call that we had launched a new software for our Cercon all-ceramic system called Cercon Arch, that, among other things, provides the lab with better utilization of the Cercon block, making Cercon a cost-competitive alternative to precious and non-precious metal crowns and bridges.

We recently released Cercon I, which is a stand-alone optical scanner that is used in conjunction with Cercon Arch. The unit scans eyes, models for crowns and bridges and abutments, and it scans them in a time that's less than 20 seconds per unit, and a precision of approximately 10 microns or less, which we believe is truly an advantageous feature to what is currently on the market.

We also introduced two new ultrasonic scaling systems, Cavitron Plus and Cavitron Jet Plus, which also contains an air polishing unit. Both bring tremendous improvement over previous designs such as increased power, a cordless foot pedal control, a diagnostic display panel, and improved ergonomics.

This upcoming weekend, at the American Academy of Orthodontics, we will launch two new orthodontic products. The first, Innovation L, which is the first interactive self-ligating lingual bracket system. This system provides the esthetics of a traditional lingual system with the ability to provide, in the beginning, passive no-friction treatment, and then, near later stages, active increased-friction treatment, and what this means is the benefit of this will reduce the treatment time for the patient and, of course, for the doctor.

The other orthodontic product that is to be launched is [Chris Syrs Cera], which is a ceramic buckle tube. These devices are bonded to a tooth, and they often come in contact with the opposing tooth, and this contact often causes erosion or wear of the opposing tooth. [Chris Syrs Cera] is the unique composition of ceramic that mimics the characteristics of enamel, therefore, having similar wear and hardening characteristics, and this prevents such erosion and wear.

This is just a sampling of a few of the new releases with our existing pipeline. We expect, again, to exceed 25 new product launches in 2006. We're really very excited about the new products that we've already released and look forward to updating you on these products and others during future calls.

Just in closing, before I turn the call over to Bill, I would like to make some additional remarks.

We are pleased with our first quarter results and think it represents a very good start for the year. We continue to be optimistic about the balance of the year and are maintaining our guidance of $2.80 to $2.85 per diluted share. This includes the stock-option expense, but it does not include any restructuring charges.

That concludes my formal remarks.

I will now turn the call over to Bill.

Thanks, Gary.

Good morning, everyone.

As Gary mentioned, net sales for the first quarter of 2006 increased by 5.9% in total and increased by 3.9%, excluding precious metals. The sales increase, ex-precious metals, for the quarter included a 6.4% increase for internal growth, an increase of 1% from acquisitions, and a -3.5% impact from foreign exchange translation.

The geographic mix of sales, ex-precious metals, in first quarter 2006, included the U.S. at 42.7%, Europe represented 38.1% this year, and the rest of the world was 19.2% of sales.

European sales as a percent of total sales, inched up slightly as sales in Germany improved during first quarter of 2006, compared to the depressed level in 2005. The stronger dollar in the first quarter compared to last year, not only negatively impacted sales growth, but also had a slight negative impact on earnings in the period.

Despite the effects of translation, earnings were strong this quarter as we benefited from improving margin rates. Gross margins for the first quarter were 57.4%, that's ex-precious metals, compared to 56.6% in the first quarter of 2005.

Margin rates were positively impacted in the quarter not only by improved product mix and manufacturing efficiencies, but also from the Company's decision to exit it's Chicago pharmaceutical facility. Gross margin rates should continue to run at an improved level throughout all of 2006.

SG&A expenses were $145.4 million, or 37.9% of sales, ex-precious metals, in the first quarter of 2006, versus 37.5% in the prior year's first quarters. The higher expense level known in the first quarter primarily resulted from the expensing of stock options in 2006, which will impact each quarter. If stock-option expenses were included in both periods, SG&A expenses would have been lower than last year by 0.3% of sales, ex-precious metals.

Operational margins for the quarter were 16.2%, compared to 17.2% in the first quarter of last year. If stock-option expense was included in 2005, operating margins would have been 16.6%. Operating margins based on sales, excluding precious metals, were 18.2%, compared to 19% last year in the same period, and operating margins based on sales, excluding precious metals, for comparative purposes, excluding restructuring and including stock-option expenses in both periods, would have been 19.5% in the first quarter of 2006, and 17.9% in 2005, or an improvement of 160 basis points. We continue to believe that operating margins, excluding restructuring, but including stock-option expenses, will run at least one-half to one full percentage point higher throughout 2006, as we continue to benefit from the items highlighted in this period.

Net interest and other income in the quarter was $1.2 million, which is an improvement of $1 million compared to last year's first quarter. Net interest expense improved by $4.7 million in the quarter, and other income decreased 4.3 million, primarily as a result of a foreign exchange transaction gain recorded in the first quarter of last year. As we move through this year, we expect net interest to continue to run favorably as a result of our net investment hedges and our lower borrowing levels.

The corporate tax rate in the quarter was 29.8%, compared to 30.3% in the first quarter of 2005, and the first quarter's operational tax rate was 30.3%. Net income in the first quarter of 2006 was $50 million, or $0.62 per diluted share, compared to $49 million, or $0.60 per diluted share, in the first quarter of 2005.

On a pro forma basis, net income, excluding restructuring costs, but including the expensing of stock options in both periods, which constitutes a non-GAAP measure, were $53.1 million, or $0.66 per diluted share, in 2006, compared to $46.4 million, or $0.56 per diluted share, in the first quarter of 2005. This represents a 17.9% increase in earnings per diluted share on an adjusted or pro forma basis in the first quarter of 2006.

Let's now look at cash flow and a few balance sheet items as well.

Cash flow from operating activities was was $11.4 million in the first quarter of 2006, compared to 25 million in the same period last year. However, the first quarter of 2006 included $23 million of cash outflow for the tax payment associated with the repatriation of foreign earnings that were made in the fourth quarter of 2005, and a change in the classification of tax benefits from share-based compensation. Cash flow increased 38% without the impact of those items in the period.

Capital expenditures were $9 million in the quarter, and depreciation and amortization for the first quarter of 2006 were $12 million.

Inventory days were 96 at the end of the first quarter of 2006, compared to 97 at the end of the first quarter last year, and 90 days at the end of 2005. We expect inventory days to improve slightly for the entire year.

Receivable days stood at 57 days at the end of the first quarter, compared to 52 days achieved at year-end, and we do expect improvement in AR days back to our target of the low-50s by year-end.

At the end of the first quarter of 2006, we had $413 million in cash and short-term investments. Long-term debt was 187 million at the end of the first quarter, and in addition, we had 478 million of short-term debt and a derivative asset value of $16 million.

Dentsply repurchased $8 million of stock for approximately 146,000 shares at an average price of $56.88 in the first quarter of 2006. Based on the Company's current authorizations to maintain up to 5.5 million shares of treasury stock, we still have approximately 3.2 million shares available for repurchase.

Finally, as Gary noted, we remain comfortable with a diluted earnings per share range of $2.80 to $2.85 for 2006. This guidance includes the impact of expensing stock options, but excludes the impact of restructuring costs.

That concludes our prepared remarks, and we would be glad to answer any questions that you may have at this time.

[OPERATOR INSTRUCTIONS]

Your first question comes from Derek Leckow with Barrington Research.

Thank you.

Good morning, and good quarter.

Good morning, Derek.

Question on modeling the revenue, excluding precious metals -- as we look at the rest of the year, Bill, can you help us out with the variance there between the overall top-line and the precious metals content?

From an overall growth rate moving forward, are you talking about just looking at the affects-related impacts, or are you looking at just expectations on internal growth?

Actually I'm looking at just the difference. How much, in terms of precious metals, do you think you're going to be selling each quarter? Is there a way to quantify that so we can predict a little better what the difference might be between the top-line and removing the precious metals content?

I think on the precious metals side, obviously, part of that is always determining on where the pricing of that precious metal is going.

If you look at the first quarter of this year and also the second quarter of this year, I think that you'll see some of that higher rebound really associated with the depressed German market, but then, for the rest of the year, you just typically see normalized growth within that area.

Okay.

Derek, probably an average quarter would be about 50 million.

Okay.

Thanks a lot.

And then, on your comments regarding the internal growth in the U.S, the 1.2% -- you talked about the issues there, and those are going to be isolated to Q1. I wonder if you could help us by talking about the variance between the dealer purchases and your sales out by broad-product category, like if you, for instance, were to take out the specialty groups versus the general dental group?

Well I don't have that in front of me, Derek. I can talk to it in general terms.

It's not unusual for us, particularly Dentsply, given the number of products that we have sitting in dealer inventory, to continue to see inventories getting consolidated, and this is happening for two reasons -- one, you're seeing acquisitions that larger dealers are making of smaller so that compresses the supply-chain channel; and secondly, as larger dealers who have more sophisticated systems and have better turns get more volume, then it takes more inventory out of the pipeline.

I think the third thing that specifically effects Dentsply is, over the course of the last six or seven years, we've improved our service levels to distributors by about 40%. So, by doing that, it helps us reduce our inventory, but also helps them reduce their inventory. So, I think those three factors could influence -- say that you'll continue to see inventories getting reduced in our dealer network compared to the sales out the door.

Okay.

And then, just on that subject of internal growth, as it rebounds here this year, is one of the drivers going to be the fact that your priority is to put more sales people out there? I think that you've mentioned that's a priority, and can you speak to what your plans are for sales force growth, and, perhaps, give us the numbers of sales people that you have in each of the major areas?

Yes. The increase rep in the two specialty areas, we really have done that over time. We're going to accelerate that going forward because they have shown that they continue showing very good growth.

I just know you'd like to hear the numbers, Derek, but I don't want to give them for competitive reasons.

Okay.

[Inaudible] our competitor's numbers, so I understand their resource allocation.

But direction, though, we should probably expect to see incrementally, every quarter, you'll be adding sales people, and I suppose that you have people you're training internally, and you're probably also looking outside in the industry to get some experienced reps -- right?

All of the above.

Okay. Alright. That's it for now.

Thanks a lot.

Yes.

You're next question comes from Suey Wong with Robert W. Baird.

Good morning, Suey.

Thank you.

My first question deals with Germany. With the changes in the German reimbursement system last year, are you seeing much uptick in your Cercon ceramic business?

Very much so. In fact, Suey, we even saw it last year. It was just disguised because of the overall deflation of the market, but we're extremely pleased with what Cercon is doing and the growth that it has in the German market, and, of course, we expect the same growth in markets all over the world.

Good.

Gary, could you give an update on your lab business -- the strategy over in China?

Yes.

For the sake of everyone else on the call, probably should give some background. A couple years ago we saw an increase in the number of crown and bridge cases, probably simpler cases, that were going to lower-labor markets -- I think everybody mostly identifies China, but that's not the only lower-labor market. Some large labs were buying foreign labs that were in these lower-cost markets, and we saw some large labs and some medium labs that were contracting with these, and what the ultimate concern of ours was that, first of all, you're seeing U.S. market suffer -- the lab market -- and secondly, when they go offshore, if you will, they aren't necessarily designating brand, which is not to our benefit because we do have a lot of brand recognition.

We saw this as a trend. Did not consider it at all an anomaly, and we needed to develop a strategy to make sure that we weren't losing as a result of it.

So, as you know, we have presence in all low-labor markets, and we wanted to offer -- make an offering to our labs for a finished crown and bridge so that they could free-up their labor, which is more expensive, to focus on higher-end, more profitable crowns and bridges. When we did that, we knew that we had to add space -- building, if you will. We had to hire people, and then, we would have to train them, or we could acquire a facility with skilled people and a training capacity, and that's what we did.

We introduced that in the first quarter. Quite frankly, Suey, there was a varied reaction. We had some people that opposed it, and really their opposition, for the most part, was a concern that we would take this directly to the dentist and bypass the lab, and I can tell you that absolutely is not a strategy of ours. We have nothing that goes to a lab that also goes to a dentist.

We also had many people that favored it, and they immediately used up the existing capacity that we had acquired in China, and beyond that, Suey, we also have had many people since then that now are showing an interest that were originally opposed. I think it's going to be a little bumpy here in the short-term, but I absolutely believe it's a correct strategy.

I kind of equate it to the automobile industry. You know, this is inevitable. It's like General Motors sitting around waiting for Japan to stop selling in the U.S. It's just not going to happen, and the labs have to address this, and this is a service we're offering to address it.

Good.

Thank you very much, Gary.

Your next question comes from Frank Pinkerton with Banc of America Securities.

Hi, guys. It's actually Jeff, sitting in for Frank.

I was wondering if you guys could touch on the uses of cash flow going forward, particularly share repurchase targets?

Sure.

Obviously, one, we've got a share repurchase program that's out there to-date. We've got about 3.2 million shares available net of our stock option exercising that we can purchase. Our first primary use of cash is acquisitions and continues to be acquisitions. However, I think that both based on the strong cash flow that we have on an annual basis, as well as our strong overall balance sheet position, you should absolutely be expecting us to be doing both of those -- both acquisitions and share buy-backs moving forward here. I think that we will probably end up being more aggressive on that buy-back in the second quarter than we were in the first.

Okay. Thanks.

And then, just a follow-up on the acquisition environment -- as last-standing independent large dental consumable manufacturer, does Dentsply consider itself to be at a disadvantage?

Large--?

Do you see yourself being at a disadvantage for not having the endless balance sheet that some of these other companies now have?

Absolutely not.

I don't know how we would ever draw that conclusion, Jeff. I'm not certain there's anything out there in dentistry that we couldn't buy with our balance sheet.

Okay.

Thank you.

Your next question comes from Richard Tortoriello with Standard & Poor's Equity Research.

Thank you.

I have two questions -- the first regarding Asia and your strategy there. I'm wondering if you could talk a little bit about your strategy, particularly over the next two years. Can you -- do you believe you can increase the percentage of sales from Asia significantly over that time? Do you acquisition opportunities in any of those markets, and also, how do you compete cost effectively in these lower cost of living local markets?

That's a great question.

First of all, in Asia, for people that don't know, we have 100% wholly-owned manufacturing facilities in both China and India, so on the low-cost products, at least the ones that we produce there, we can certainly compete.

We have our own operations in virtually every major country in Asia and Korea, Vietnam, Taiwan, Thailand, just about -- the Philippines, Indonesia, and unlike our competitors that import, we have our people on the ground promoting Dentsply only. So, that's the other advantage.

We've had double-digit growth in this area for a number of years. The only time it wasn't was during the SARS epidemic, and I think that really impacted everyone. In terms of the one of the strategies for growth, I'll go back to the importers, if you're using an importer, most importers want to keep everyone happy, so they really don't give any focus to any particular manufacturer they're representing. Secondly, during a downturn in the economy, which happens often in these markets, you get a little concerned about their ability to pay, so you're a little bit limited in growing during a downturn.

Since we have our own people and have no importers, we really do have an opportunity to gain share when markets are down, and we have done that. We think we're very well-suited to deal with the growth of the market and, in fact, exceed it, and we'll continue making investments in those markets to make sure we capitalize on it.

Okay.

Thank you.

And then, second question - with regard to the Danaher acquisition Cybron, can you just comment a little bit on how, or if that changes industry dynamics at all?

I'm not sure how much I can comment on that. I'll make what comments I'm comfortable with.

I don't think that was a surprise to anyone. We have a tremendous respect for Cybron and for Danaher. Danaher, as everyone knows, is very strong operationally, and that's something they will bring to the table. We respect them.

I think that the flip-side of that is that we understand the customer. We've got about 104-year edge on them. We know customers in dentistry very well. We know customers in every catagory. We know them in every geography, so while we still respect Cybron, and we respect Danaher, we're very comfortable in competing with them.

Okay. Great.

Thank you.

Your next question comes from Anthony Ostrea with JMP Securities.

Hi. Good morning, guys.

Hi, Anthony.

Gary, was the 6.4% organic growth that you broke in the quarter, was that consistent with your internal projections, and as such, how does that change your viewpoint of hitting about 6 % organic growth for the year? I think that's what you guided to last quarter.

The 6.4 wasn't too far off. How we delivered it was a little different than we expected.

We still are targeting, Anthony, 5 to 6, with the -- and expect to be at the upper-end of that. So, in terms of 6.4 being above that original target, I would still keep the target within 5 to 6 range and focus on high-end.

Got it.

And then, how much did the effect of the business in Germany actually grow in the quarter? I know it was down 20% last year.

It was -- I think it was 13, but I see that that's different as we go through. I will get back on the call and let you know.

Got it.

And then, can you -- earlier you made comments on focusing your efforts on ortho and implants given you're seeing fairly robust growth there. One, can you quantify the growth in the quarter for ortho and implants, and two, can you talk about your strategy for actually what does that mean when you're putting in your resources? Are you -- earlier, you indicated possibly adding sales people, but are you adding more product there?

Well, I can quantify it in a range.

They were both double-digit locally, and orthodontics, clearly, double-digits is exceeding market. I can also say that the double-digit in the implant exceeds the estimates of growth in the market.

In terms of new products, I think, for orthodontics, I cited two in my conference call with the Innovation L and the other buckle tube. I did not talk about any implants, but we have had them and, of course, implants, once you introduce a new product, it has about a three to five-year, even more than that, growth. So yes, there's plenty of new products. I'm not willing to talk about any we haven't announced, but there are more new products in the pipeline.

Also, on our road show, which, obviously, everyone can access that online under our Investor Relations section as well too, but that road show presentation highlights a number of different product slides there. One slide is just designated to implants and shows a number of the new products that we have in that category.

Got it.

Thank you.

And then, regarding your anesthetic products, I know you mentioned in your prepared comments that you're in negotiations with potentially longer-term suppliers. Can you -- are you foreseeing being able to close on those contracts this year or will that slip into next year? What's the time line we should be looking at?

We expect it this year. In fact, we really expect it, hopefully, this quarter, but, at least, next quarter.

Back to your original question, Anthony, the growth in Germany -- the basis of growth was 14.5.

Great.

Thank you.

Your next question comes from Steven Postal with Lehman Brothers.

Thank you, and thanks for all of the detail.

Can you talk about -- maybe address what is behind the increase in the inventory days and DSO's?

I'll make a comment and then, if Bill has something to add.

Obviously, we would like a steady decline in inventories, but this is not unusual if you look at our trends. As we build inventories for new product launches during the year, that does require a build of inventory to pre-empt those launches, so it's not unusual to see some movement up in our inventories with the ultimate objective that we have for the year being realized in the fourth quarter.

Yes. I think that that's a fair statement, and I think if you look at where we're at at the end of the first quarter last year, you'll see that, actually, we're a little bit below that level. Our first quarter is typically always a build-up period to a certain extent, and then, we work that down, especially in the third and fourth Qs, but I think you'll probably also see some of the work down already in the second quarter.

Okay.

And then, I know the sales force re-organization that you announced in the second-half of last year, and the creation of Dentsply-North America, could you maybe give us some perspectives on how you think that's gone for the Company?

Steven, that's a good question. I should point out that while we announced it at the end of last year, we continued through the balance of 2005, with the old organization, especially from a compensation standpoint, and, of course, if you don't change compensation, you're not changing behavior very much.

So, we're really looking at just the first quarter, and you don't see financial results from it. I can only tell you that, anecdotally, the expectations that we had of how they would work collectively and the interface they would have and representing all of the distributer-based companies to dealers, as opposed to us going there separately, it is operating exactly as we expected. I think if you want to see some financial benefit from this, it's going to take us, easily, a year or more.

Okay.

And then, can you talk about the acquisition environment in terms of opportunities for yourself to how you compare the opportunities now over, say, the past few years ?

I don't think the opportunities have changed much.

As I have said in the past, so many of the companies that -- well, that many that we are targeting -- so many of the companies in dentistry are private. So while they may have an ultimate strategy of divestiture, their decisions and timing aren't so much based on value, but they are based on personal and family issues. So you can't influence that too much.

You also have to have some willing sellers. If you look at, historically, the biggest year that we ever had in acquisitions was 2001, and, coincidentally, the four companies we bought happened to be sellers looking for a buyer, as opposed to what we would be doing being a buyer going out looking for a seller. So, you have to have a little luck going your way too.

Okay.

And it looks like the U.S. market for you guys has been somewhat volatile in terms of the reported growth rates over the past 12 to 18 months. I know you addressed some of that in terms of some specific issues, but what I'm wondering is if you could just provide some perspectives on what you seen in the U.S. market, and has there been any changes in there in terms of end-user trend or demand for your product?

Yes. That's a fair question, Steve, and I think, as you looked at the volatility earlier on a few years ago, it mainly surrounded the lab business, of which, hopefully, we've addressed some of that, at least for Dentsply, with some of our strategy of having a broader-product offering.

We don't see too much volatility in the other businesses, and the way that we measure it is not so much by what is purchased at the dealer-level, but what they report of sales of our products out to the dentist-level, and we see pretty steady growth there. And so, we're not too concerned about that because we know that whatever volatility you see in a particular quarter, will eventually smooth out as long as you have that demand at the end-user level.

Okay.

And final question for me -- just on Oraqix -- can you just update us how you think that product is doing in the market?

Where we're seeing most growth today is in Europe, which is later introduction than it was in the U.S. We still don't have it in every country in Europe, but we're very pleased to see the growth in France and Italy, which was introduced during last year, and really hasn't completed a full-year cycle.

But having said that, I'd like to see it grow faster in every market.

Okay.

Thanks a lot for the comments.

[OPERATOR INSTRUCTIONS]

You do have a follow-up question from Anthony Ostrea with JMP Securities.

Hi, guys.

I just had one follow-up question.

If you X-out the two items that you mentioned that affected your U.S. business, what would have organic growth been?

Yes, I -- that's a great question.

I really am reluctant to give that for a couple of reasons. I isolated those as two major contributors to the difference, but please keep in mind that restoratives is one of 25 to 30 categories that we have, of which probably 15 to 20 of those go through distribution, so there's a lot of other ins and outs that take place if you isolate it within a quarter. We clearly expect all of those categories to have a growth trend over time, but it's unrealistic to expect, at any given quarter, they are all going to be growing.

So, I understand the interest in the question, but I'm really reluctant to give that number out.

Okay.

Thanks.

Your next question is a follow-up question from Steven Postal with Lehman Brothers.

Yes. I just have one quick follow-up question.

Consolidation in distributors in Europe, and I guess consolidation distributors worldwide, in terms of the impact on your business as they rationalize their infrastructure, how should we think about that in terms of the past, and do you see anything on the horizon -- debt -- that we should think about in terms of how that would impact revenue trends?

Are you looking at it from an an inventory standpoint or just a business standpoint, Steven?

Both.

Well, from the inventory standpoint, as long as there's not a huge consolidation of a large distributer in a given period, then you shouldn't see something in the short-term.

Overall, I mean, we see it as a gradual inventory reduction of our dealers in the U.S. primarily, and somewhat, secondarily, in Europe. So, I think it's gradual. I wouldn't be too concerned about trying to track it.

From a business standpoint, we're not too concerned about it. In fact, we may very well welcome the opportunity because there's a lot of other services and benefits we can offer large distributors because of our own critical mass.

Okay.

Thank you.

[OPERATOR INSTRUCTIONS]

There are no further questions at this time.

Okay.

Thank you, [LuAnn], and I'd like to thank you, all, for participating in the call, and thank you, all, for your continued interest in our company.