DENTSPLY SIRONA Inc (XRAY) 2008 Q1 法說會逐字稿

Analyst welcome to the DENTSPLY International first quarter earnings conference call. Today's conference is being recorded.

At this time I would like to turn this conference over to Brett wise, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning, everyone. Thank you for joining us on our first quarter call. This is Bret Wise and also will us today is Chris Clark, our Executive Vice President and Chief Operating Officer, and Bill Jellison our Senior Vice President and Chief Financial Officer. Begin today's call with comments about the results of the quarter and I have asked Chris Clark to provide you with further insights --

[Technical difficulties] Mr. Wise, you have rejoined.

Good morning, we are having a few difficulties with the phone system. So we are going to try this again and hopefully we will come through a little clearer. Again, this is Bret Wise, cHairman and Chief Executive Officer and also with us today are Chris Clark, our Executive Vice President and Chief Operating Officer and Bill Jellison, our Senior Vice President and Chief Financial Officer. I will begin today's call with a few overview comments about the results of our first quarter. And I have asked Chris Clark to elaborate on the progress we have made in the implant business and also highlight some of our new product intro deductions both that came out in Q1 and a few in the pipeline. Bill will follow Chris' remarks with some more detailed information on our financial results. Then following our formal remarks, we will be pleased to answer any questions that you have.

Before we get started it is important to note that this conference all forward looking statements involving risks and uncertainties these should be considered in conjunction with in the company's most recent annual report on 10-K and our periodic reports on 10-Q, our press releases and conference call transcripts, all which have been filed with the SEC. This conference call in its entirety will be part of AK filing that will be available on our website subsequent to the call.

Last night we announced our first quarter results and we are pleased to report a continue ways of growth trends we experienced in 2007. Most notable accelerated sales growth and record sales and earnings for the first quarter. Our overall sales growth X precious metal content was up 17.2% in the quarter. Reflecting both a very balanced consumable product portfolio and a very broad geographical reach. You'll hear later today from Bill that our sales outside the United States now comprise 62% of our total sales providing us with a balanced profile which lessens the impact any one geography has on our reported results. Overall, our reported sales for the quarter were $560.8million, an increase of 18.6% compared to the 2007 quarter, excluding precious metal content , again sales were $496.2 million. As I mentioned earlier that's an increase of 17.2% for the quarter and that represents our fastest quarterly expansion since the third quarter of 2002.

Growth in the quarter, xPrecious metals was driven by 6.3% internal growth. 3.2% acquisition growth to arrive at a constant currency growth of under 10% And we had a 7.7% pickup from currency. . On a worldwide basis growth was very strong in both endodontics and implants and was aided by some acceleration in the consumable categories. On a geographic basis, internal growth was strongest outside the U.S. with Europe growing will 8.5% and the rest of the world growing 6.3%on an internal basis, while the U.S. had a respectable 4.0% growth. In Europe the growth rate remained strong despite really some tuff comps from the prior year with the International Dental Show which we refer to as the IDS, was held in Cologne, Germany. This show is held every other year and was held in the third week of March last year. Thus, it gave us a boost to our consumable sales in the first quarter last year creating what was really a pretty difficult comp for us as we looked at the first quarter this year, which makes the 8.5% internal growth in Europe even more remark believe. Rest of the world growth was led by double digit growth in Asia, Latin America, the Middle East and Australia.

On balance, the organic sales growth outside the U.S. was very strong and we continue to believe we are growing share in Europe, and throughout many regions in the world and in particular those that I mentioned here. In the US market conditions have progressed as we have anticipated given the broader economic conditions. Market growth has slowed in the hire and discretionary procedures which more normal growth rates experienced in the consumables and to the lesser extent the lab market. On our part we continue to see very strong growth rates in our U..S implant business, reflecting the strength of our sales and marketing investments there, albeit off of a fairly smaller base. On the broader market indicators, what I refer to as the normal consumables we believe the market has slowed slightly from the pace of late last year. As we noted in the past this broad sect tore of dental consumables is fairly resistant to economic pressures and as expected our sales in that category held up much better than the broader economy and better than the higher end discretionary dental procedures.

Earnings for the quarter were $.45 a share both on a GAAP basis and non-GAAP basis reflecting an 18.4% increase from the prior year quarter. Reflecting the strong sales growth but also an improvement of more than 100 basis points in our operating margins. We target operating margin of 30 to50 basis points a year. And we feel good about the performance this quarter and it reflects a very strong start towards us reaching our goals for this year.

Overall, we are off to a strong start in 2008 for both sales growth and earnings growth as we enter the year we have taken some weakness in the US market in account when we gave the guidance for 2008. That was back in the beginning of February. I think we have seen some of that weakness in the US to develop and it will probably take a few quarters for that to turn around. One of the key strength of Dentsply is in our diversity in both product categories and in our geographic coverage and this quarter and throughout 2008 we expect that to be a key driver in our financial results. The performance in Europe and the rest of the world clearly demonstrated that.

Our original guidance for the year when we spoke at the beginning of February was stated at internal growth of 5.5 to 6.5%, and earnings of $1.83 to $1.88. We realize given the first quarter results here there is an upward bias on this full year guidance. And today, we feel even more comfortable about the guidance we gave you back in February. At this point given we only have one quarter under our belts and the continued uncertainty with about the US economy. We are going to confirm the guidance for the full year that we have set on both measures. And we expect to re-visit the internal growth and the earnings guidance after the conclusion of our second quarter much as we have done in past years.

Before passing the call over to Chris, I would like to comment on a meeting I attended in Berlin Germany two weeks ago it was the 13th Friadent symposium. As you know its our implant company. The symposium that they held there is held every other year. And it is our key marketing meeting to introduce new concepts and products to our implant customers or prospective implant customers and really reflected an impressive list of key opinion leaders around the world. The registration was targeted at 2,000 customers, and we closed the registration two weeks in advance of the meeting with 2,300 attendees confirmed from over 60 countries. It was a standing room only meeting and we clearly could have had 3,000 people there space permitting. The meeting was interesting and reflected the strong demand we have created for our implant systems and I have asked Chris elaborate on that a bit today and to talk to you about the progress with the implant business as well as some of the new products we

Thank you, Brett. Good morning everyone. Thank you for joining us on our call this morning. I would like to take a few moments and comment on our global implant business. Including key initiative and investments in this area, as well as provide an update on our overall innovation efforts for the company. We continue to gain market share globally in the dental implant market. Total growth was almost 30% in the quarter and internal growth was over 15% globally with US internal growth of approximately 20%. This despite indications of a slower implant market. This 15% internal growth figure is without the impact of currency and also without the impact of any acquisitions including distributors that we have acquired. This internal growth rate is above that of our competitors in the segment that have reported their first quarter results. As a result we believe our implant performance is above the market growth rate in both the US and Europe.

We continued to be pleased with the impact of the additional resources we have invested in this area. We are particularly pleased with the recent approval of the underlying claims to extend our tissue care positions for Ankylos implant line to the U.S. This positioning has been very effective in Europe in gaining significant market share. And these new claims are being very well received by both current and prospective customers. This should continue to provide a solid growth platform for our efforts to gain implant in the US. In Europe we are expanding our sales representation on implants in several key countries and we anticipate this will continue to drive above market growth there.

Brett mentioned the recent Friadent symposium held two weeks ago in Berlin. We were really excited about this event. It attracted over 2,300 attendees and provided a unique platform to preview an excited innovation. Ankylos CX, which is scheduled to be introduced to core European markets later in the second quarter and to the U.S. by the end of 2008. Ankylos CX is a new implant design that provides the unique option of either a non-indexed or indexed abutment connection in one implant body. This allows the dentist to choose the procedure according to the clinical case and according to his or her clinical preference. Reaction to the new CX implant design has been extremely positive.

In addition to the commercial investments, we have mentioned we have also invested heavily in additional implant manufacturing capacity to support our ongoing above market growth rate. We will continue to invest as appropriate to ensure we stay ahead of our successful demand creation efforts. Beyond the innovation efforts I have highlighted in our business new products continue to be a key focus for us across each of our franchises. In the first quarter for instance, our preventive franchise introduced a new hand piece sleeve for our new Cavitron Ultrasonic Scaler system. This sleeve illuminates the oral cavity, enhancing visibility for the hygentist during the scaling procedure. In addition we introduced an updated Caries detection device called Midwest Caries ID, that utilizes technology that was acquired as part of the next deal last year. This device incorporates new design features, including a new sterilization cassette to make it even easier for dentists to use and also a new calibration system to help ensure greater accuracy over the life of the device.

In addition this business is scheduled to introduce a new hand piece that combines the best of both air and electric hand piece technologies delivering the constant cutting speed of electrics with a smaller profile and lighter weight of an air driven hand piece. First shipments are scheduled for later this quarter. In the first quarter our orthodontic business introduced a new lingual minor tooth movement system called Innovation LMTN. This system provides the esthetic advantages of lingual brackets which are placed behind the teeth rather than in front and offer greater patient esthetics versus traditional bracket systems. Innovation LNTM addresses historical issues associated with lingual bracket systems namely patient speech and tong irritation. also significantly simplifies the clinical procedure for lingualize brackets for the dentist. Also our European prosthetics business has expanded their centralized manufacturing capabilities to now include precious metal substructures in addition to non precious titanium and zirconia. This further expands the utility of our compartous central manufacturing service and also the Cercon Eye Scanner..

We continue to be pleased by both breadth and the impact of our innovation efforts. And we have a full pipeline of new launches that we anticipate bringing to market during the year. We expect several important launch during Q2 will benefit us in the second half of the year. I would now like to call turn the call over to Bill Jellison, our Chief Financial Officer to review the financial results for the quarter in more detail.

Thanks, Chris. Good morning everyone. As Brett mentioned net sales for the first quarter of 2008 increased by 18.6% in total and increased by 17.2% excluding precious metals. The sales increase xPrecious metals for the quarter included a 6.3% increase from internal growth a 3.2% increase from acquisitions and 7.7% increase from foreign exchanges translation.

The geographic mix of sales xPrecious metals in the first quarter of 2008 included the US at 38.2%, Europe represented 42.4% and the rest of the world was 19.4% of sales. European sales is a percent of total sales increased as Europe continued to grow faster than the US throughout 2007 and continued that trend in the first quarter of 2008 benefited by strong internal growth and the strength of European currencies. We are pleased with the strong double digit growth and above market organic growth in a period where economic conditions in the US have added some uncertainty for most companies. The stronger Euro in the first quarter from last year benefited sales growth but had little impact on earnings in the period.

Net purchase price variances caused by the weak dollar transaction exchange rate losses and higher interest expenses from our net investment hedges off set the favorable foreign exchange translation benefits on income in the period. Gross margins for the first quarter were 57.5% that's xPrecious metals compared to 57.2% for all of last year and 58.2% in the first quarter of 2007. Margin rates were negatively impacted in the quarter compared to the same period last year due to impacts of recent acquisitions and purchase price variances caused by the weakening dollar. While we expect these purchase price variances to continue there is the opportunity of gross margin rate improvements as we move through the year from the benefits of product line mix, synergies from integrating our acquisitions and our lien initiatives.

SG &A related expenses were $184 million or 37.1% of sales xPrecious metals in the first quarter of 2008 versus 38.8% in the prior year's first quarter. These expenses improved as a percentage of sales as costs were better leveraged in 2008 benefiting from the strong sales performance. Operational margins for the quarter were 18% compared to 17.2% in the first quarter of last year. Operating margins on sales excluding precious metals were 20.4% compared to 19.2% last year in the same period. An operating margins based on sales excluding precious metals for comparative purposes excluding restructuring in both periods would have been 20.4% in the first quarter of 2008 and 19.4% in 2007. A 100 basis point improvement.

Operating margin rates showed a nice improvement in the period and we remain comfortable with our target of achieving a 30 to 50 basis point improvement in operating margins on average over the long-term as we are well on our way to showing solid improvement again for this year. Net interest was $6.1 million compared to income of $2.2 million in this area last year in the first quarter. Net interest reflected $5.1 million of the increased expense. The sharp divergence of lower US dollar interest rates versus increased Euro and Swiss Franc rates combined with the weaker US dollar were the primarily causes of this change. The impact of the company's net investment hedges typically move in the opposite direction of currency moves reducing some of the volatility caused movement in exchange rates on the company's income and equity.

This increase and in net increase expenses is expected to continue this year with the US dollar weaker than last year. And U.S. interest rates below European rates. The increase in other expenses primarily related to foreign exchange transaction losses in the period. These transaction gains or losses occurred due to balance sheets accounts, measured in currencies other than the functionality currency and can occur in periods where there is a rapid change in currency rates. Overall this loss is larger than we would have expected on a re-occurring basis and is difficult really to model or anticipate in either direction. The corporate tax rate in the quarter decreased to approximately 28% from approximately 30% in the first quarter of 2007. This rate reduction includes the benefits of both the lowering of the German corporate tax rate which became effective as of January 1st, 2008 and the benefits of a global business and tax reorganization which was recently completed. We expect this to be a reasonable assumption for an operational tax rate for 2008.

Net income in the first quarter of 2008 was $68.2 million or $.45 per diluted share compared to $58.5 million or $.38 per diluted share in the first quarter of 2007 and 18.4% increase in earnings per diluted share. Cash flow from operating activities in the first quarter of 2008 was approximately $30 million compared to $42 million in the same period last year. The cash flow in the first quarter of 2008 was lower than last year due to a lower tax payment outflow in the first quarter of last year and accounts receivable starting out at a much lower level at the beginning of 2008 versus the beginning of 2007. Capital expenditures in the period were $19 million with de appreciate agencies and amortization of $14 million in the period.

Inventory days were 100 at the end of the first quarter of 2008 compared to 101 at the end of the first quarter last year and 95 days at the end of 2007. Inventory typically increases early in the year as we prepare for the launch of new products. However, we expect to improve to the low to mid 90 day range by year end. Receivable days were 57 days at the end of the first quarter of 2008, compared to 59 days at the end of the first quarter in 2007, and 51 days at the end of 2007. We expect improvement in accounts receivable days back to the low to mid 50s by year end.

At the end of the first quarter of 2008 we had $345 million in cash and short-term investments. Total debt was $587 million at the end of the first quarter. During the first quarter we have repurchased $88 million of our stock or approximately 2.2 million shares at an average price of $39.85. Based on the company's recently increased authorization to maintain up to 17 million shares of treasury stock, we still have approximately 3 million shares available for repurchase.

Finally, as Brett noted, we are very pleased with our first quarter performance and confidently reaffirm our original guidance set for the year for diluted earnings per share in the range of $1.83 to $1.88 for 2008. This guidance excludes the impacts of restructuring costs or one time tax adjustments. That concludes our prepared remarks. Thanks for your support and we would be glad to answer any questions you may have at this time.

(OPERATOR INSTRUCTIONS). We will take our first question from Barrington Research's Derrick Leckow

Thank you, good morning and congratulations on a great quarter.

Thanks.

I'm having a really hard time with the guidance however. If I pull out the 2 million shares you repurchase and I lower my tax rate I'm having a hard time keeping it within that range. Can you tell me where should I be more conservative?

Well, Derrick, with the guidance we have given is for a full year. We certainly out performed expectations here in the first quarter I think both on a sales basis and on a margin basis. Certainly the interest expense issue that Bill raised is important because those hedges are doing exactly what they were designed to do is mute the currency on earnings. You may want to take a look at that and then remodel the tax rate. I think that sustain believe 100 basis point improvement might be aggressive for the full year particularly if we will run this strong we will look for ways to reinvest to accelerate growth further in the future. We don't give guidance on specific points of the income statement. And in the past as you know even if we perform extraordinarily strong in the first quarter we like to see two quarters behind us before we start adjusting our guidance. That's about the most guidance I can give you at this point.

That's helpful. The second question is to your visibility into your distributed consumables business especially in the US where you have the strategic partnership program in place. You have real time access to that data and I'm wondering if you can share with us what you are seeing in terms of distributor behavior right now especially in the US market.

I think there is a couple dynamics in the US market in Q1 some of which we have discussed already, some of which we haven't. I would say the dynamics in Q1 for the distribute tore based businesses was very strong in January and February and a weaker March. There were two less selling days in March than there were the year before. To not grow at all you had to grow 10% in March. That's not surprising because of the change of Easter which last year was in the second quarter and this year was in the first quarter. So the comments that we made earlier about the consumables market I think hold true at this point. To us it looks like it slowed just a little. We will get a lot more input on that when we have the public distributors come out with their results. They are probably a much better measure of the total consumables market than we would be at this point. But as best we can tell that market slowed a little bit but not much.

So the ordering patterns seem rational to you right now.

Yes, ordering patterns seem rational from the distributors to us, yes.

Thanks very much.

Our next question will come from Anthony Ostrea with JMP Securities

Good morning, guys.

Good morning.

Few questions, just on your guidance, going back to February and now I did hear your comments on reiterating guidance and you are probably more optimistic on what guidance is. Can you comment on the change, has there been a change in what you see in the overall dental markets maybe in the US when you first gave guidance in February and what you are seeing right now?

No, I think we probably anticipated what was going to happen pretty well. When we were back at the beginning of February on our call questions came up about what would happen with a slowing US economy and we thought the higher end discretionary procedures would probably slow and today what we see from our competitors at least the public implant companies it did slow. It didn't slow as much for us in implants. Again we have over resourced that business in a really hitting on a lot of cylinders giving the new claims that Chris was talking about. I don't know if we are a good measure on the overall implant. Ortho we have seen that market slow somewhat. We have some opportunities in the second half of the year to accelerate again because of some new products we will bring forward. The market has reacted about how we thought it would.

You mentioned ortho numbers, can you give us the ortho numbers for the US and worldwide.

We haven't in the past and we don't intend to disclose those. The ortho business and ours is primarily a US business slowed in the US but not over seas.

Same question I guess with endo, would you be able to comment on how that grew in the quarter versus past quarters.

Same issue for endo although the worldwide rate for endo and implants both grew double digits in the first quarter. And the performance outside the US was stronger than the US. We saw a little bit of slowing in that market too. Some endo procedures are discretionary. The majority are not discretionary if they involve pain but there are some endo procedures that are deferable when they are not involving pain. I think we saw that market slow down too.

Can you maybe update us on your integration for US implant and endo sales force? Is that practically done right now.

It is pretty well done. Let me let Chris comment on that.

Anthony, that is pretty well done. The sales organization is fully combined and trained and we continue to be real pleased with the progress we see on that. Certainly the US implant growth number is largely driven by the additional sales resources we have put on this. As we look at it, we are pleased with the implant performance result of that initiative.

Thank you very much.

Thanks.

Next we will hear from Jon Wood with Banc of America securities.

Morning.

Good morning, John.

Brett, you mentioned two less selling days in March, is there any empirical way to quantify what Easter did at least in a broad sense to the internal growth rate in the quarter?

It is a little bit harder for our business it may be easier for the distributors business. I think if for the full quarter I think we are one selling day shorter than the prior year. In our direct businesses we see that right away because it is one less day for the reps to have to take orders and try to sell product. Our direct businesses are about half of our business. In the distributor based businesses of course, the distributors inventory is between us and the end user, at no time not quite so easy to equate it to that. Generally speaking I would say if we lose a shipping day in the quarter that could have as much as a 1.5 point impact on sales. I tend to think it is toward it's lower end of that range than the higher end.

You talked about distributor orders in March, can you give us a view on April? Are you willing to go there.

Our April sales book looks good. We haven't closed out the month yet. I guess we have since yesterday was the end of the month. We haven't seen the month end numbers yet. The month of April looked pretty good to us.

Great. Has the composition of the acquisition pipeline changed at all in the last six months? Has the controversy in the dental market impacted evaluation expectations at all?

I would say not to a great extent. I think that there are still a lot of opportunities for acquisition in the market. We are certainly want to participate that and be a consolidator. We think there are many companies out there that would help us grow fast and be more profitable. There are a number of discussions going on. I would not say there was a dramatic change in evaluation expectations at this point.

One quick one for Bill. Are you willing to talk about what we should be talking about in terms of the non operating expense line, Bill? I think the last time we talked it was $8 million ahead of last year. It seems like it has changed materially given the first quarter experience. Are you willing to comment on how much more of a head wind that will be on the non operating expense line?

Actually, if you look at the non operating expense including the interest, both interest and the Fx transaction related impact that we have, I would say between the two of those this period that is probably a reasonable level for you to look at over the next two or three quarters. Maybe even a little bit lower than that because obviously we got hit this quarter by a transaction related impact and the transaction related movement can actually go in either direction. It is depending on how the rates actually move within that quarter versus where they are comparison to last year. On the interest side of the equation though I think the interest, our expectation on the interest would be that it would probably continue at roughly the same level it was in this quarter at least from a projection perspective.

Are share purchases really accretive given the interest rate environment?

They are at the prices that we are at at this point and, you know, obviously we take a look at that relative to when we buy back stock but from our perspective, we still believe it is a good investment.

Thanks a lot.

(OPERATOR INSTRUCTIONS). We will take a question from Jeff Johnson with Robert Baird

Good morning, guys.

Good morning, Jeff.

Nice quarter here, guys. Wondering, Bill, especially if I could get a couple clarifying comments on the model, building on John's question on the net other line. If I'm hearing you correctly, should we be thinking on our model of about negative $5 million or so as an expense?

I think that's probably in a reasonable ballpark there, Jeff. Keep in mind that our interest expense is a large piece of that is coming from our net hedge investments. Part of that is going to depend on where the currency rates move within the different periods as well as that rate differential. At this point in time within the first quarter of this year most of the benefits on translation were off set in three categories. They were off set in our gross margin area with negative PPV variances because of the different rates that we're paying and different currencies even though we have many natural hedges there. The second one was the on the transaction negative expense or negative loss we had in the quarter which was a couple million dollars roughly. And the third point was the higher interest expense level and those three components typically don't completely off set the movement in the Fx translation side. We usually get a little bit of a positive drop too. Because of the fast movement on the decreasing interest rate environment in the US, it actually offset most of that positive benefit in the first quarter.

Sure. Remind me you pay Euro fixed, right? It is receiving the U.S. float.

We are paying Euro variable in most cases. We are paying out in the U.S. side and we are receiving Euro.

Okay. Just two other questions, Bill. Tax rate I thought last quarter we were talking an operational rate of 30.4% '07 and dropping that 100 to 150. Where is the other extra 100 basis points coming now for 2008. And can you quantify on the operating margin the 100 basis point improvement this quarter. What percentage of that maybe came from the last year's IDS versus no IDS this year so we can kind of think about going forward operating margin?

Let me go back and re-clarify that interest comment, Jeff. I might have said that in reverse. We are receiving on the U.S. side and we are paying out on the Euro side. Since the U.S. rates have flipped on us where U.S. rates are currently lower, we are receiving less under that environment.

That's what I thought.

On the operational side of the equation, from an operating perspective we had very solid operating rate improvement in this first quarter. I think if you look at kind of how the numbers ran through last year the second quarter was actually a pretty good operating margin rate in that period. I think that you should probably expect that there is not much of an improvement over the overall operating rate during that period. If you look toward the back half of that year, I think we will continue to see good improvements.

Great. Brett, could you I guess clarify, you made a comment on the lab business in your prepared remarks and I couldn't tell exactly what you meant by that whether the lab environment has softened here in the US or whether that held in well. I wasn't quite clear on your comments.

I will clarify that. I think in the lab business what where he saw was the consumable business looked good but the equipment business slowed down. We see labs continuing to do business and so forth but maybe less willing to make big expend towers right now.

I think we are close to lapping the anniversary of Cercon I. Or do you think any of ti is purely comps at this point sluggishness.

I think it is probably both. We are launched Cercon I now about a year and a half ago in Europe and about a year ago in the U.S. I tend to think it is a balance between the two. I think it is more driven by labs being less willing to make big expenditures in the current environment.

Last two questions. I know you don't quantify growth rates by some of your specialty segments,but you have given a growth rate overall for specialty, any chance we can get that again? And bigger picture on the implant business obviously some reimbursement issues in Sweden right now. Do you have much exposure there and if you do is this something by the second half when those issues probably clear up, that we can see a further up particular in your implant business by the second half of the year?

On the first part of the question, I don't think we have disclosed in total segments before. I think it is fair to say that the specialty segments in the US slowed down absent implant, but worldwide we didn't see that slowness. We didn't see it in ortho. We didn't see it in implant. We didn't see it in endo. Those businesses remain quite strong outside the US which of course is the biggest piece of our business. The consumable categories, for us, consumable categories have improved but of course had the off set of a slightly slower market here in the US. Over seas the consumable categories were quite strong. That's the way I would characterize that and the second question you had was --

The Swedish dental implant reimbursement changes and if that gets resolved could be a tail wind for the second half of the year?

Our business in Sweden in implants is quite small. We are not experiencing much of an impact from the change and we don't view it as an upside for us either.

Thanks I appreciate it.

(OPERATOR INSTRUCTIONS). We have a follow-up from Jon Wood with Banc of America Securities.

Brett, do you think that an organic growth rate of over approximating 4% in the U.S. is still relevant for the year?

It is hard to say. In my prepared comments I said that we don't think that will turn around in a quarter for instance. The market is what the market is and it will change over time but not dramaticly within 90 days. We think that the market conditions we have today are probably sustainable. We don't see it getting worse for the next couple quarters but we wouldn't model a substantial improvement in the next couple quarters either in the U.S. We are looking closely at that. If there are places we could make investments to excelerate our own growth even in a tougher economic environment and that may be possible absent additional investment, I think the market is where it is going to be for at least a quarter or two.

Very good. Thanks.

Gentlemen, at this time there are no further questions. I will turn things back over.

Thank you for joining us today. We feel we are off to a strong start for 2008. We will remain very optimistic about the growth opportunities in the global dental industry and are making investments to participate in that and accelerate it. And we look forward to updating you on our progress as we move towards the year. Thank you very much.

Thank you all for joining. Have a wonderful day.