DENTSPLY SIRONA Inc. (XRAY) Q1 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the DENTSPLY International First Quarter Fiscal 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Derek Leckow, Vice President of Investor Relations. Sir, you may begin.

Thank you very much, Mark. Good morning, and thank you, all, for joining us to discuss DENTSPLY International's first quarter 2013 results. Joining us on the call today are Bret Wise, Chairman and CEO; Chris Clark, President and CFO; and Jim Mosch, Executive Vice President and COO. We'll have some prepared remarks and then we'll be glad to answer any questions that you may have. I hope you had a chance to review our press release, which we issued earlier this morning. A copy of that press release is also available for download on our website at www.dentsply.com. We've also provided a set of supplemental slides to accompany this call, also available for download in the Investor Relations section. Before we get started, it's important to note that this call may include forward-looking statements involving risks and uncertainties. These should be considered in conjunction with the risk factors and uncertainties that are described in our SEC filings. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. And a recording of this call in its entirety will be available on our website. As you can see in the release, our results this quarter included a number of nonrecurring items and other non-GAAP adjustments. Our comments on this call will focus on results, including certain adjustments that provide operational insight, excluding these items. These items are noted on the non-GAAP reconciliation tables contained in the release. You will note that our earnings guidance is also presented on an adjusted basis. With that, I would now like to turn the call over to Chairman and CEO, Bret Wise. Bret?

Thank you, Derek, and good morning, everyone. Thank you for joining us on our first quarter call this morning. Now before we get started, I'd like to comment on the executive changes that we made in early April, and as you probably have seen in our earlier announcement, Chris Clark, DENTSPLY's President, has now also assumed the Chief Financial role. As you probably know, while we have a matrixed organization and Chris now has responsibilities for essentially all the corporate functional organizations. That includes business development and strategy, finance, HR, R&D, manufacturing, logistics, IT and clinical. Chris has a -- has very strong business and finance skills and a keen knowledge of operational matters and, of course, will be playing a key role in taking our organization to the next level, including finding ways to better leverage our cost across the breadth -- the very broad platform that we have. Also announced in April is that Jim Mosch, DENTSPLY's Executive VP, has been promoted to Chief Operating Officer. Jim has a wealth of operating experience, including a very long tenure here at DENTSPLY, and this is a very strong next logical step for him and for the company. Jim has had oversight responsibilities for over half of our businesses in the past and now has responsibly for the full operating group. Jim also has strong capabilities in organizational design and management and is uniquely suited to this new role. Jim's been on these calls in the past primarily in his role in business development, so some of you already know him. Now we believe this new structure and the team we have in place will position us well to create value and capitalize on the opportunities that we have for the company going forward. Now before moving to our results,…

Thank you, Bret. From an operations perspective, let me provide an update on the integration activities and performance, our key product launches and also frame the expectations in these areas. I first like to talk about the implant integration. As you are aware, we'd been working over last year on the integration of Astra Tech Dental and DENTSPLY Friadent implant businesses. The overriding objective of this integration was to create a single global implant business. The integration process has been strategically and organizationally comprehensive. And while we recognized some synergies in 2012, we expect to recognize further synergies through manufacturing and in-sourcing, distribution consolidation and the leverage of overhead cost as we move forward. At the country level, the integration has involved the consolidation of locations, moving to a single sales force with a combined product portfolio and leveraging SG&A cost. No doubt there is some disruption to this process as we merge territories, realign customers and retrain the majority of the organization. However, despite these challenges and distractions, we were able to grow above market in each quarter 2012. Our first country integration was North America, which occurred May 1, 2012. Systematically, we have moved country-by-country around the world to complete the integration. In January of this year, we integrated 2 large countries in Europe: Germany and France. At this point, we only have 1 large market left to integrate, which is Japan, and we expect to complete this process in the second quarter. Germany is our largest and most complex location, particularly as both of the pre-acquisition businesses enjoyed meaningful market share. As a result of the German integration, we combined the 2 organizations and created a single DENTSPLY implants Germany business. At the same time, we separated the previous corporate and manufacturing organizations associated with DENTSPLY Friadent…

Thank you, Jim. Good morning, everyone. Let me build on some of Bret's comments and provide a bit of a deeper dive on some of the key income statement elements and also provide some additional color on our balance sheet as well as the cash flow for the quarter. Our sales growth, excluding precious metals, of 1.1% and flat adjusted earnings per share for the period probably don't provide the best barometer of performance given the calendar comparison. As we look at our business performance compared to the market information available, we believe that our internal growth rate of 1.6% is probably slightly above market growth for the quarter with the impacts of the calendar and the directionally softer European market as well as the specific impact of the implant integration in Germany affecting our results this quarter. Currency translation was a headwind of approximately 60 basis points on sales for the quarter and it was about 100 basis points worse than our expectations coming into the period. The gross profit rate on an adjusted basis in the first quarter was 58.2% of sales, excluding precious metals. That's 190 basis point improvement sequentially, but 130 basis points below our high-water mark of 59.5% in the first quarter of 2012. Let me put that in perspective. Since the date of the Astra Tech acquisition, we have reported average non-GAAP gross profit margins of 57.7%. So compared with historical averages, this performance is favorable, particularly when you consider the 2 less selling days. However, there are still a couple of important factors that weighed on the results in the quarter. First, we estimate that the medical device excise tax in the United States reduced gross margins by about 40 to 50 basis points compared to prior year. This was obviously not in…

[Operator Instructions] And we take our first question from Glen Santangelo with Credit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: Just a couple of quick questions, if I could. Essentially, Bret, if I heard you correctly, it kind of sounds like maybe Europe took one step backwards this quarter, and I thought that inconsistent with what we've heard from other vendors. I'm just sort of curious if you have any sort of anecdotal data points or anything that would put that in a little bit more perspective? Is it just macroeconomic or is there something else that we should be thinking about now that we're also almost into mid-May. I mean, what have you seen thus far in the second quarter? Anything worth calling out?

Thanks, Glen. Certainly, Northern Europe differs from country to country but it was slightly weaker this quarter. If I had to talk about specific countries, I'd say France, in particular, seemed to be weaker. Germany seemed to be about the same and, of course, several other countries. But generally, just a slightly weaker Northern Europe. And it wasn't as strong as it had been to allow it to offset weakness in the southern part of Europe. In our guidance -- or the adjustments to our guidance that we made today, we're reflecting that we're not -- we don't see indications that that will turn around as we move through the back half of the year here, although we're encouraged by some recent reports about manufacturing in Germany, for instance, that seem to be rather strong in April. I think it's hard to translate that into the dental market without some specific data points. But from a very high level, Europe just seemed to be a little bit weaker than we had experienced last year. Glen J. Santangelo - Crédit Suisse AG, Research Division: And maybe if I could just follow up on that, related to margins, you said in the press release that, obviously, the slower revenue growth may have impacted margins to some extent. But you also called out specifically some important investments made by the company during the quarter, which maybe depressed margins a little bit. And I'm not sure if you were referring to what we talked about with respect to Germany and the implant business or if there were some other investments. And I'm trying to get a sense if those investments were kind of onetime or are they going to be ongoing within the cost structure? Any additional details?

Sure. The investments we were referring to, the primary one was the integration in Germany that Jim discussed in more detail. That certainly is a onetime event, and we believe we got that behind us now. It's important to get that done, but it did depress margins somewhat in the quarter. The other investment was the International Dental Show in March. We've made commitments for those expenses far in advance. We kept those commitments. We had a great show at IDS, but we weren't able to -- even though we brought SG&A down by 50 basis points, with lower growth and with the IDS expenses, the fact those expenses were in the plan for the quarter constrained us a little bit about -- towards bringing expenses down further. So those are the 2 primary items.

For our next question, we'll move to Jeff Johnson at Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Bret, wondered if I could just focus on the dental implant business for a second. First, I don't think I heard a U.S. number. If you didn't give it, maybe even just some qualitative comments around U.S. And then in Germany, hearing especially the January and February impact of taking the sales force out for a few weeks there, wondering if you could maybe talk about March, April, May trends there just -- it sounds like it's bounced back. But the other thing we're hearing in Germany is that the dental implant market itself may have slowed. You had the #2 player there in Germany introduced kind of a lower-priced prepackaged system here recently. Just wondered kind of how you think of the German dental implant market here over the next few quarters?

Okay. I'll try to do that and, Jim, if you have any further insights, you can add them. Our results x Germany were positive for the quarter even though we had 2 less selling days. We view that as a -- certainly compared to the announcements we've seen from other people, we view that as a pretty strong performance. We did take the hit in Germany by taking the reps out of the field early in the quarter. We saw that reflected in our sales per selling day, particularly over the first 2 months of the quarter where there was some recovery late in the quarter of that, and I'm not sure about April, I haven't seen the April numbers yet. But as far as we can tell, this looks like a company-specific event early in the quarter and, to us, doesn't really provide evidence that the market there, in total, has changed in any way. Jim, do you have anything that you would add to that?

Yes. Jeff, from a standpoint of Germany, I would say that we don't feel that there was an underlying softness in the market. There was a lot of noise. Obviously, for us, there was some particular noise regarding the integration. But in addition to that, I think the 2 less selling days and the fact that there was an additional week of Easter versus the prior year in Q1, it just created some noise in the market that didn't lead us to believe that there was anything other than that and the overall market was okay. You also asked a question about Camlog's introduction. And obviously, this is a -- this was a pretty big announcement for them at IDS. And from our perspective, we look at this as somewhat of an effort on their part. It's a fairly standard implant system with some fairly standard but limited applications. As you probably know, Camlog is generally priced a little bit below the premium players in the German market, but not at the level of the value players. So from our perspective, and I can't say that we totally understand their strategy, but we believe that this is an effort on their part to retain some of their customers that may be reaching into the value segment and also, obviously, maybe participate in the value segment on some level as well. I think long-term, average sell price stability, I think, could be a challenge, but we don't see this as a direct impact to the premium market in Germany. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Okay. That's helpful, Jim. And Bret, not to push you here, but I don't know if you're being evasive or just not giving us the U.S. number and that's fine, but qualitatively, anything on U.S. specifically? And is it fair to kind of quantify the impact of pulling these guys out in Germany for the few weeks that, maybe $0.02 to $0.03, that's kind of backing into the model, what I'm seeing anyway?

Sorry, Jeff, I forgot that you had asked about the regional assessment. Actually Jim, you probably -- you have those numbers. You're closer to those numbers than I am, why don't you go ahead?

Yes, Jeff. One of the things I -- what's interesting about that, we feel that in the U.S. that we grew at or above the market in North America. One of the interesting dynamics for us was that, as I mentioned early on, we went live May 1 last year. And obviously, just from that standpoint, we had some activities leading up to that that kind of clouded the picture in Q1. So it's kind of difficult for us to make a true year-on-year comparison from that perspective. But I would say, overall, we are very pleased with our growth in North America.

And we'll move next to Robert Jones with Goldman Sachs.

Just looking at the U.S. internal growth, I was wondering if you could share what the impact actually was in the quarter from the med tech tax? I was just wondering -- I know you had commented on this before, but just wondering, were you actually able to fully pass that on to customers in the quarter?

Yes. Rob, it's Chris Clark. What I'll -- we took a price increase in January that included a number of factors, including tax and other items. And when we passed that through, I think, at this point, we do believe that the bulk of that is peaking, consistent with what we've seen in the past.

Okay, that's fair. And then I know you mentioned an acquisition in the quarter. I was just wondering if you'd be willing to give any more specifics around what area that acquisition was in. And then it sounds like you are currently evaluating other deals. Maybe even just broadly, being respectful of the competitive landscape, maybe just broadly what product categories you're most interested in? And I guess, in particular, high tech has continued to perform fairly well within dental. Just curious, Bret, if maybe any comments or thoughts about moving further up the value chain within the dental offering?

Okay. First of all, the small acquisition we did in the quarter was a small sales and marketing organization outside the U.S. It's really immaterial. As far as the categories we're looking at, I don't like to get into a lot of specifics there, but certainly, we're looking at acquisitions in the specialty categories, in the consumable categories. Those are probably the highest focus at this point. With respect to high tech, as you know, we're a consumable company and we're very focused on being able to participate in high tech in the consumable categories, meaning, ultimately, our products are what end up in the patient's mouth. And there's a lot of buzz about digital dentistry right now. Digital dentistry is a facilitator for products that end up in the patient's mouth. But ultimately, we see our products as part of that facilitation, not necessarily being the high tech item itself but being what is facilitated to get the dentistry done.

Got it. And then I -- just quickly, the last one I had, and maybe I missed this. I didn't hear an update on the ortho relaunch. Just wondering, any comments around how you're feeling about the market share regain there?

Yes. We're very much on track relative to our expectations. I think we've commented, I think, on the last call that we thought we'd recover about 1/3 of the lost market share and I think that we also commented that from thereon out, it's going to be a little bit of a tougher fight, if you will. That said, I think we're very pleased with the progress we had in the first quarter. We've just had the AAO show, which is the largest orthodontic show in the year this past week in Philadelphia. And I would say that we were very pleased with the results from that show as well as the customer sentiment regarding our product line. So we're very happy.

For our next question, we go to the Steve Beuchaw with Morgan Stanley.

Just a question on the outlook for the balance of the year. It's easy to understand how there were a number of puts and takes in the quarter that made the quarter a little atypical. I wonder if you could use that context to help us think about the drivers of the earnings acceleration over the balance of the year, given the magnitude, something like -- not 1,000 basis points but quite a bit of EPS growth acceleration over the balance of the year. How do you think about -- or how are you telling us to think about the organic growth profile? Are we back to north of 3% on a consistent basis? And do we see SG&A trend back to, I guess, where The Street had been looking for them? Is that a really simplistic way to think about the model that you would think is appropriate?

Well, I think a couple of things. One, our growth in the first quarter here was 1.6% organic with 2 less selling days. So it's hard to adjust that for the selling days, but certainly it would've been reasonably higher without the 2 less selling days. As we look at our markets around the world, we see the U.S., it seems to be doing fine and consistent with last year. Europe's a little weaker, but some of the issues that we had in the first quarter, including an adverse mix, the implant integration, et cetera, are things that we can overcome going forward on a -- we can likely overcome going forward, but we don't think we can make up for the impact that we had in the first quarter. So I think that's the way we think about it. The plans we had for the year, we think, are intact. We can't quite make up for what happened in the first quarter. We are going to have a little bit more headwind from slower markets in Europe as we move for the year, and we're very focused on expense leverage, as we've commented in our comments today, although I don't want to quantify that at this point. Chris, you got anything to add to that?

No, I think those are the primary drivers. Agree.

That's very helpful. And then one more specific question on the implant markets. There's been some disruption in the Japanese market with commentary in the media. It seems like that is starting to reverse. And would you agree with that characterization that the noise is starting to fade? And does that set us up for a better trend over the balance of the year, maybe a rebound over there?

Yes. You're absolutely right. I mean, obviously, last year was very difficult and that impact probably led through most of the year. I think we saw -- I would say we saw a stabilization in the first quarter. There has been some efforts, industry efforts, with the Japanese Dental Association and others to try and quell some of those issues. And we're hopeful that that will improve things. Do we -- would we predict a rebound at this point in time? I don't think I would be that strong quite yet. I think we need to see, probably another quarter of activity before we have a better understanding of what's going on in Japan.

And for our next question, we'll move to John Kreger with William Blair. John Kreger - William Blair & Company L.L.C., Research Division: Just a quick follow-up on Japan. I think you mentioned that that was the last major market where you need to integrate the implant business. Do you expect Japan, therefore, to be soft in the second quarter similar to what you saw in Germany this quarter?

No, I don't. I think the Japanese integration is not as complex from the standpoint of what we did in Germany. Germany was a very complex integration because that was the former kind of world headquarters for Friadent. So it's a larger organization, we have a lot of moving parts there. Japan, I think also, obviously, it's at the end, so we've got a lot of internal knowledge regarding that integration. And we expect this should go as others. And I think we're well prepared for that. We don't really anticipate any disruption there. John Kreger - William Blair & Company L.L.C., Research Division: Great. And then Chris, in terms of the guidance, can you just clarify, are you assuming that Europe is kind of stable from Q1 levels for the rest of the year or deteriorates further?

Yes. We're basically saying what we're seeing in Europe -- that systemic to Europe would continue through the rest of the year. Obviously, the determinate implant integration we're viewing as a first quarter onetime factor, that is now behind us. John Kreger - William Blair & Company L.L.C., Research Division: Excellent. And then one last one. I think in the past, your annual price increases have been in the 1% to 2% range. Can -- with the med tech tax, following up on Bob's question, can we assume in the U.S., therefore, it was more like 3% to 4% or maybe a bit lower than that?

Yes. I would characterize our global price increase -- I think we made this comment on the last call as well that typically, globally, we're probably in the 1.5% to 2% range. And I think on the first quarter call, we made the comment that we're going to be north of 2%. I'll stick with that comment, John. Obviously, if you look at it geographically, we'd be a little bit higher in the United States relative to x U.S. more than likely.

We'll move now to Jon Block with Stifel. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Maybe the first question, Bret, just some high level thoughts on the endodontic business. I know you don't really give specific commentary there, but how did that perform? And then I think it was at Chicago Midwinter when Cybron introduced a new reciprocating file. Can you talk to -- I knew that your sales guys are giving you there that's having at least a revenue impact in the field?

Okay. Jonathan, I'm going to start the response here and then pass it to Jim. The endodontic business is performing very well. We had some key innovations that came out about 1.5 years ago that's very popular in market and growing rapidly. We also introduced some new file system at Chicago and at the IDS, which has gotten rave responses from customers. With respect to the competitive -- the response from the competitor, I'm going to let Jim address that as well as anything else he has to add to what I've said here.

Yes. As far as -- from the standpoint of the overall market, I think what you've seen in our endodontic business, really over the last 2 years, is really successive product launches. We made some pretty significant investments in R&D in the endodontic business really going back about 4 or 5 years ago. I would say that we're bearing the fruits of those efforts at this point in time. Those new products have been very well received in the marketplace. And I believe, in many cases, we've been fortunate to really set the standard in the marketplace. As far as the new products are coming onboard, certainly we believe that competitors will attempt to emulate those products. But endodontics is not a one-product category and new products that we've offered, that we've launched in both -- really 3 different filesystems, a new -- got a purchase fill-in systems, irrigation systems and also new motors in apex locators that improved the procedure as well as diagnostics. I mean, I think we're really offering a very updated, innovative, comprehensive solution for the customers. And we believe that we're comfortably positioned in that market versus our competitors. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Perfect. Great, very helpful. And then, Chris, I think this one's for you. You guys are bringing down guidance by about $0.05. I believe you mentioned tax is lower and will be a beneficiary of about $0.01 per quarter. So if you call it sort of lowering by $0.09, is 1/2 from FX and 1/2 from ops? That was going to be the first question. And if that's true, in terms of ops, what's really the driver, is it -- seems Europe might be a little bit weaker relative to where you guys were 3 months ago?

Yes, thanks. I'd probably characterize as the following: tax is obviously favorable in the range that you mentioned, basically offset by incremental FX going the other way. And then you're looking at basically about $0.03 in terms of really kind of the first quarter miss, if you will, in terms of the operational side on -- due to softer Europe but as well the German implant integration in that mix, and we're carrying that forward. And then basically carrying forward a little bit additional softness -- or continuing softness, if you will, for Europe. So those would kind of be the building blocks that I would use to think about it. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Then very last question. Bret, Europe up 0.8%, but China actually had down consumables year-over-year. So do you think the market softened but you're still confident that you're gaining share over in Europe?

Yes. I think that is pretty clear we are. We've seen -- of course, we've seen all the dental implant companies report. We've seen the largest distributor report. Our numbers are clearly above the average of those numbers and we feel pretty comfortable that the new product introductions and the innovation, such as the innovation that Jim referred to earlier, are driving above market performance for us at this point. Just a moment on the market, I mean, we had been running closer to 2% growth in Europe. This quarter came in a little bit under 1%, although there's that 2 day selling issue, which clouds the picture, but so apples-to-apples, we feel that we're performing about like we were in Europe, although we feel like the markets have weakened just a little bit, just perhaps as we entered 2013.

We move now to Brandon Couillard with Jefferies. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: Bret, could you elaborate on the Rest of World experience in the quarter? It seemed to decelerate a little bit. Were there any unusual channel dynamics?

Yes, let me give you some insights on that. Rest of World was 2.9% for us this year. And again, that's not adjusted for the selling day issue. What we saw this quarter was a very strong growth in the emerging market elements of Rest of World. As I commented, Japan was down, which shouldn't be a surprise to anybody given the reports that we've seen on the implant companies in Japan. And then the other developed markets within our Rest of World category were kind of flat or slow growth or maybe slightly down. So the report here is the result of average -- it's the average of those emerging markets which are growing faster, the developed portions that are growing slower and the impact of the 2 selling days. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: And Chris, any chance you could break out the impact of FX on the gross margin line between both translation and transaction?

Yes. I mean, for the year or for the quarter? S. Brandon Couillard - Jefferies & Company, Inc., Research Division: Both, if that's possible.

Well, the way to think about it is there's a lot going on, Brandon, in the FX line or in the FX rates. Obviously, translation was slightly negative for the quarter. We think that's probably going to be roughly neutral to a little bit positive probably for the year. But transaction is probably the primary challenge, specifically, the lot of interactions between non-US dollar rates given, basically, our business model and business structure. And then also, as Bill mentioned I think on the last call, the impact of our hedging activities, basically we're going to be -- more beneficial or stronger benefits last year compared to this year. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: And is there a yin dynamic going on with -- in terms of the revised outlook? And can you explain or just walk us through in terms of how you interact or how you transact with your ortho partner there? What are the thought that might have been a slight positive given your source product?

Yes, it actually helps and hurts. Relative to the sourcing of the orthodontic product, yes, there is. It does certainly -- the movement does help us there. Unfortunately, it also hurts us in terms of the translation impact coming back from our business in Japan. So you got to kind of assume, you can't kind of get away with those 2 factors. S. Brandon Couillard - Jefferies & Company, Inc., Research Division: All right. And then just what should we be thinking about in terms of operating cash flow for the year? That would be helpful.

Yes, and again, as we look at it, operating cash flow, we think, should be improving sequentially as we move forward. The first quarter typically is our lighter quarter. And again, our operating cash flow expectations for the year are slightly above what we had last year.

And our next question is from Yi-Dan Wang with Deutsche Bank.

So I have 2 questions, one on implants and the other one on your consumer care business. So on the implant business, I missed the first part of your call, so apologies. Did I get it right that the business was in low to mid single-digit decline, including the negative impact of the 2 fewer selling days?

Yes, implants were down globally low to mid single -- or low to mid single-digits, not correcting for the selling days. And if you take Germany out, it was flat to up, again, not adjusting for the selling days.

Great. And then to what extent would you say that business has benefited from the IDS? And also with the U.S. integration down for a few quarters now, what cross-selling benefits are you seeing coming through so far? And what could we see going forward?

Yes. As far as the IDS is concerned, we had a fairly big presence at the IDS. I think this was mainly very much our -- in many ways, our global launch of the new DENTSPLY implants as we have been going through the integration over the last year. It was a good show. Sales were as expected. As you know, something about the IDS consumable sales are not as impactful at the IDS as is equipment sales. I think clinicians definitely go to that show to see the equipment that they can't see in their offices. But it was a good show for us. We're able to launch some new products. And so we were comfortable with what we accomplished at that show. As it relates to the U.S., you're absolutely right. We launched the integration May 1 of last year, and we're now coming up on 1 year anniversary of that. And we've seen some good successes from that. The organization has been fully trained. They're doing well. They're selling the entire portfolio. And we've seen some excellent cross-selling that's come out of that. First of all, it's allowed us to put a little bit more sales resources on the previous DENTSPLY brands, as DENTSPLY was a smaller organization in North America. And from a cross-selling standpoint, it's -- so our Isis bars and bridges, we've fully launched that product. That has now -- you'll able to order that online via the Atlantis WebOrder system, that we've had some excellent uptake in that area. In addition, we have a good portfolio of bone-grafting products in the North American market and the new larger organization is now taking that on and has found that to be successful. And then quite frankly, between the 2 organizations, having a larger organization now selling the Atlantis customized abutments, that has also been an impact. So we're definitely seeing the leverage from the larger organization and the broader portfolio products.

Okay. So I mean, it sounds like you should be seeing quite a lot of benefits but from your commentary earlier about your performance in the U.S. relative to your peers, am I right in interpreting that we're still at the very early stages of seeing some of these benefits? And if so, should be a lot more to come?

No, actually my earlier comments indicated that we were performing at the market or better, and that we are quite pleased with our North American business. So we feel that we are beyond the integration and that organization is performing at a good level.

Okay. And would you be able to give us just maybe a bit better idea on how much better you are versus the market?

Well, I mean, the beauty is in the eyes of the beholder here. We're not sure exactly what the market is, but we think the market's somewhere in the mid single-digit range in the U.S., and you should reflect on our comments in comparison to that.

Okay. And then on your constant [ph] care business, would you able to give us how fast that business -- or how that business developed in the quarter and your expectations in the short and also in the midterm with your key competitors being quite active in upgrading the U.S. intermittent capital market and also launching from what we can see to be quite differentiated products?

We're very happy with that medical business that -- I know that you weren't on earlier, but that was in our comments. That business performed as we went through the regional growth rates. We commented in each region that that was contributor to our growth rate, and we're happy with that. We have some -- we launched in January a new product that we think is pretty innovative and is getting a good uptake there. We've been taking share for the last 18 months in the female market off a new product as well. So we're feeling pretty good about that medical business and the outlook, not only in the U.S., which you're raised, which is a growth market, but outside the U.S. as well.

Our next questions will come from Steven Valiquette with UBS.

So just a question here. You mentioned the channel inventories are still a little bit high at the end of the first quarter in the U.S. Just trying to reconcile that. To me, that would sort of imply maybe that the second quarter sales will still be a touch soft in relation to that. Then the flipside, you also referenced the tough comparison you had in the U.S. in the first quarter was a 7.4% internal growth, and that comp should get easier in the second quarter. So if we kind of think about the puts and takes of all that, what's our -- I mean how should we be thinking about the second quarter without giving specific guidance, so just kind of reconciling those factors for the upcoming quarter?

So let me kind of work through those one at time. Chris may have an insight because he's pretty close to this. But we did a price increase October 1. And as predicted, the dealers bought ahead of that price increase, and we commented on that at that time. Then as we moved through Q4, we could see the dealers were trying to increase their channel inventories ahead of the January 1 price increase. On our fourth quarter call, we commented we thought that happened. But then that was pretty much confirmed through subsequent announcements by the dealers themselves that they had, in fact, had increased inventories pretty substantially ahead of that January 1 price increase. We did see some of that come down in the first quarter, but certainly not all of it. And the recent announcement by one of the major dealers confirmed this as well, that they seem to have worked off about 1/3 of that inventory build in the first quarter. So you're right, that still got to come out. I don't know when it will happen, if it will be second quarter, if it will be over several quarters. But that -- we don't believe those inventory levels will stay that high over a very long period of time. With respect to the comparison, we did have a gangbuster January -- or first quarter 2012 in the U.S. 7.4% internal growth and that comparison does ease as we move through the rest of the year. Chris, I don't know if you have anything to add?

No. Those are the 2 factors. And again, on the channel inventories, they did come down in the quarter, but they still have room to grow yet. So yes, from that angle, I'd view that as a gradual transition, at this point over the next quarter or, frankly, it may be a little bit even in Q3.

And we have a follow-up question from Jeff Johnson at Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: So Bret, help me reconcile one thing. If I look at your European number, up 0.8%, you had the 2 fewer selling days, you had the German issue. I mean if I ex all that out, I can convince myself maybe 3%, 4%, even 4% or 5% growth in the quarter. Obviously, that doesn't fit with kind of your tone on the European market right now and kind of everything else we've been hearing on Europe. So I don't want to get too positive on the next few quarters, but it also seems like the numbers, optically, were definitely better. And how do I reconcile all that?

Well, I think there's a number of factors there. One is that -- and this number is about a full point lower than we've been running. There are 2 fewer selling days offsetting that. We did have the largest dental show in the world in Europe in the first quarter. So I mean -- and that does generally boost growth, not so much in equipment but it's certainly not negative to equipment. So you should take those comments -- with reason -- the way to reconcile this is we look country-by-country in Europe right now. We see those markets as being -- some of those markets, not all -- from being slightly softer than they were, let's say, 6 months ago or 1 year ago. And I wouldn't take our number and just add 2% or 3% to it for the selling days because there's more factors there, including the trade shows, to consider. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then just on the channel inventory, just a follow-up from the last question. I mean, is your look at channel inventory just a comment Schein made on their call a couple of days ago? Or do you have more of a direct line insight there? Because I think some of their inventory's remaining high on the equipment side, not necessarily the consumables that would impact you. So I'm assuming there's something more than just their public comments that have you kind of talking about that?

Yes. Jeff, we monitor that pretty closely. Obviously, we know we sell to them and we get their sellout data, so that enables us to monitor that pretty carefully and it gets beyond just Schein.

And Mr. Leckow, that concludes today's question-and-answer session. I'd like to turn the conference back over to you for any additional or closing remarks.

Well, thank you, everyone for joining us today, and that concludes our conference call. We thank you for your interest in DENTSPLY. If you have any follow-up questions, please contact Investor Relations. Goodbye.

Ladies and gentlemen, that concludes today's conference. Again, we thank everyone for joining us.