XRAY

DENTSPLY International Inc. (XRAY)

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Dentsply International Inc. (XRAY)

Q4 2011 Earnings Call

February 16, 2012 8:30 am ET

Executives

Bret Wise – Chairman, Chief Executive Officer

Christopher Clark – President, Chief Operating Officer

William Jellison – Senior Vice President, Chief Financial Officer

Derek Leckow – Vice President, Investor Relations

Analysts

Jeff Johnson – Robert W. Baird

Larry Marsh – Barclays Capital

Robert Jones – Goldman Sachs

Glen Santangelo – Credit Suisse

Robbie Fatta – William Blair

Brandon Couillard – Jefferies

Steve Beuchaw – Morgan Stanley

Jonathan Block – SunTrust

George Humphrey – Deutsche Bank

Greg Halter – Great Lakes Review

Presentation

Operator

Good day and welcome to the Dentsply International Fourth Quarter and Year-End 2011 Earnings call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Derek Leckow, Vice President, Investor Relations. Please go ahead, sir.

Derek Leckow

Thanks very much, Audra, and my thanks to each of you for joining us today to discuss Dentsply International’s Fourth Quarter and Fiscal 2011 Results. Joining us on the call today are Bret Wise, Chairman and CEO; Chris Clark, President and COO; and Bill Jellison, Senior Vice President and CFO. Each of us will have some prepared remarks and then we’ll be glad to answer any questions that you may have.

I hope you all had a chance to review our press release, which we issued earlier this morning. A copy of the press release is also available for downloading on our website, www.dentsply.com. We have also provided a set of supplemental slides that is available for download as well.

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. 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 include a number of non-recurring items and other non-GAAP adjustments. In an effort to provide clarity from the distortion of some of these items, our comments on this call will focus on results including certain adjustments which are noted on the non-GAAP reconciliation tables contained in the release. You’ll note that our earnings guidance is also on an adjusted basis.

With that, I’d now like to turn the call over to Chairman and CEO, Bret Wise. Bret?

Bret Wise

Thank you, Derek, and good morning everyone. Thank you for joining us here on our year-end call. We’re very pleased this morning to report record sales and adjusted earnings for 2011. I think as we look back on 2011, there were four major themes for us. When we entered the year, 2011 was very much a story about new product introductions and innovation, and on that level we performed very well – in fact above our expectations, particularly in endodontics, preventatives and restoratives.

On March 11, of course, we were faced with another situation with the crisis in Japan and a loss of supply to about 9% of our business. We’ve managed through that this year, facing the supply shortage essentially throughout the year, and we’re hoping to get back to full supply by midyear this year.

The third item, of course, was the opportunity to acquire Astra Tech, which we viewed as a significant opportunity to grow our business. Astra Tech added over $150 million in sales for the quarter and over $200 million in sales for the four months under our ownership. We’re very pleased with the performance of both the implant and the healthcare businesses for this early period of our ownership and have great expectations for this transaction.

The fourth theme, of course, was economic activity where we saw a gradual strengthening in the U.S. economy and frankly the U.S. dental market throughout the year, and we saw a sequential weakening of the European economy throughout the year which culminated in a contraction for that economy in the fourth quarter.

With this backdrop, we’re very pleased to report that sales for the full year were 2.54 billion. That’s an increase of 14.3% for the full year, including precious metals, and 14.8% excluding precious metal content.

From a market perspective overall, we’re very encouraged by the progression of the dental market in the fourth quarter and our own sales growth. In total for the quarter, sales grew 29.9% with metal and 30.0% excluding precious metal content. The growth number ex-PM breaks down with internal growth in total declining 1.2%, acquisitions added 30.4%, and translation was a positive 0.8%. Internal growth, excluding orthodontics in Japan, was a positive 3.9%. That’s consistent with the trend that we saw all year. In fact, our internal growth for the full year, excluding orthodontics in Japan, was also 3.9%.

Geographic internal growth – and I’ll give this first to you in total with orthodontics in Japan, and then subsequently without those two factors. So first in total, growth ex-PM was a positive 0.7 in the U.S. – this is internal growth – 0.7 in the U.S. It was negative 1.9% for Europe and it was negative 2.2% for the rest of the world. Of course, orthodontics in Japan are significantly influencing these results, so without orthodontics in Japan, internal growth ex-PM was a positive 7.6% in the U.S., which is a material improvement compared to really any measure that we’ve seen in the last five years. Internal growth in Europe ex-ortho was a positive 2.8%. That’s not bad considering the environment in Europe. Rest of the world was a positive 1.0%.

On geographic growth, in the U.S. we saw really strong growth across all of our business units, essentially all the business units except of course orthodontics, improving sequentially and year-over-year. Although these results are strong and our data suggests that the retail sales of our products were at least in line with this growth, and perhaps were stronger because we think we probably reduced dealer inventories modestly during the quarter. Our new products continue to gain traction and are driving growth well above market in the United States now, and we expect that to continue as we move into 2012.

Europe’s internal growth, again, was 2.8% excluding orthodontics, and that was driven by new product introductions, and we’re also very pleased with this performance although I’d say we continue to be concerned about the market in Europe and the economic and the political uncertainty in that region. All that said, our results continue to be positive, driven again by new product innovations and growth well above the market in Europe.

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