Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by to walk through the Q1 2020, Dentsply Sirona earnings Conference call.
Just talk all participants are in listen only mode. After the speakers presentation there'll be a question and answer session to ask the question during the session needed to press star one on your telephone if your car operator systems or the program. Please press Star then zero I would know what should be shelters conference call Im sure. John Smith, you may begin.
Thank you operator, and good morning, everyone welcome to our first quarter Twentytwenty earnings Conference call I'd like to remind you that an earnings call press release and slide presentation related to the coal are available on our website at www Dot Dentsply Sirona Dot com.
Before we begin please take a moment to read the forward looking statements <unk> earnings press release during today's call will make certain predictive statements to reflect our current views about future performance and financial results.
Based these statements in certain assumptions and expectations of future events that are subject to risks and uncertainties. Our most recent form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions and with that I'd now like to turn the program over to Don Casey Chief Executive Officer, That's why something.
Thank you John can take all of you for joining us on the whole thing.
We hope you and your family's remains safe and healthy.
Before we begin discussing or business results for the quarter I wanted to express our gratitude to all the frontline healthcare workers, who have been so important in dealing with this unprecedented challenge.
Of course includes Dennis with continued to provide emergency services for people throughout the world. During this global health care pandemic.
Their commitment to patients and their safety is it inspiration to all of us at Dentsply Sirona.
Typically this call would focus on first quarter results and outlook.
Given the current circumstances, we were operating under Jorge and I will spend most of the time outlining our action plan over the short term and importantly, the steps, we're taking to better position the company for the long term.
The first quarter got off to a solid start our efforts to accelerate new products, while delivering against our restructuring objectives drove solid performance in January and February.
These results were in line with our previous expectations.
As we discussed in the Q4 call, we anticipated a negative impact in the first quarter due to the cobot 19 related issues that we were seeing at the time, primarily in Asia Pacific.
In mid March the Cobot 19 response expanded throughout Europe, and North America, causing a significant change in the business environment that impacted Q1 results.
Across the World government actions resulted in most dental practices being either shut down or limited to emergency procedures only.
Patient flow was also limited by restrictions designed to slow the pandemic.
During all of this I would note that our wells back health care business was unimpacted by the disruption we saw in the dental markets.
Dentsply Sirona, we moved quickly to address five key priorities.
The first was ensuring the safety of our employees.
Second was to be able to continue deliver a high level of customer service and look to new ways to stay connected with our customers.
The third priority was to improve our liquidity position.
The fourth the company took aggressive actions to control both SGN a in supply chain costs to match the changing market conditions.
Our final priority was to identify and continue driving on the critical strategic initiatives that will position Dentsply sirona for the future.
We believe that are quick actions have been affected and will form the basis for recovery when the market improves.
The trajectory of the recovery still not very clear at this point in time as different regions in countries have taken a variety approaches to managing both the shutdown as well as the reopening.
We believe that the restart will be a gradual process as a dentist office adapt to the new environment and patient competence and visiting dental offices increase.
Longer term, we were confident that the attractive market dynamics in the dental industry remain.
Furthermore, Dentsply Sirona is financial strength broad portfolio and grow global reach give us confidence that we have a solid position that will enable the company to succeed in the future.
Moving now to slide eight first quarter revenues were $874 million down 7.6%.
And down 4.3% on an organic basis as the impact of the Corona virus expanded beyond Asia Pacific and into North America in Europe.
Adjusted operating income margin came in at 14.9% down 50 basis points versus prior year, reflecting the lower level of sales in March.
Non-GAAP EPS for the quarter was 43 cents down 12.2% versus prior year and operating cash flow was an outflow of $10.7 million.
I will now turn the call over to Jorge who will review the quarter.
Thank you on and good morning.
I hope everyone is doing well and staying safe. These are obviously unusual times.
Today, we will try to offer as much data and color as we have about Q1 and current trends.
But as you can imagine there are more limitations abnormal in trying to predict future trends within a reasonable range.
Although we are beginning to see signs of economic reactivation in a few geographies, we're still experiencing a great deal of uncertainty with regards to the pace of recovery for the rest of year.
I will start with the results for the quarter and then I will share details regarding the actions we have taken to navigate the current market conditions and ensure that we remain adopted and ready to mobilize the enterprise to meet both short term and long term goals.
On slide 10, we show our first quarter Twentytwenty PNM.
Overall results working in line with our expectations.
Beginning with the topline organic revenue was down 4.3% versus last year.
Technology and equipment organic sales grew 4.8% and the consumable business declined 15.2%.
Foreign exchange represented a headwind of approximately 1.9% in the quarter, mainly due to the strengthening of the U.S. dollar relative to the euro.
Gross profit was 498.1 million or 57% of sales down 10 basis points as compared to prior year quarter.
The main driver up this decline was negative manufacturing cost absorption due to cobbett 19 related lower level of sales.
S. DNA of 367.4 million represents an improvement of 6.9% as compared to prior year.
This improvement was driven primarily by restructuring cost saving measures.
Time enough that by annual International Dental show in 2019.
And the rapid response, we implemented to match our standing with revenue trends in line of the crane market slowdown.
S DNA as a percent of sales was 42%.
Up 80 basis points as compared to the first quarter of 2019.
The rate increase was mostly related to a lower top line based this year.
Operating income declined 10.2% 230.7 million.
The tax rate into first quarter was 24.4%.
Up 40 basis points as compared to prior year due to income experiences.
Non-GAAP EPS was 43 cents down 12.2% versus the prior year quarter.
One final note on the consolidated PNM for the first quarter.
GAAP operating loss of headwind 39.9 million was driven by a non cash goodwill impairment of headroom 56.6 million and an intangible impairment of 38.7 million.
The impairment was the result from new demand projections for the equipment instruments reporting units due to the ongoing cobbett 19 impact on customer demand.
Moving onto slide 11, where we review our first quarter consumables segment performance.
Reported sales were 354 million down, 16.8% and organic sales were down 15.2%.
Our consumable business was tracking in line with our expectations for the first two months of the quarter.
But then it declined significantly in all regions in March and the impact from Cobbett 19 began to reach material levels.
All of our product groups in consumables were negatively impacted by the temporary closure offices, resulting from either a government or healthcare policy related guidelines.
Consumables operating income margin was 17.4% in the quarter.
Down from just under 25% last year.
The decline in margin was the result of lower volume and a favorable absorption costs.
Partially offset by the positive impact of our cost reduction measures, including Cobbett 19 related actions.
On slide 12, we highlight our technologies and equipment first quarter performance.
Net sales were 520.3 million down 10 basis points as compared to prior year organic sales for the quarter were 4.8% higher than last year.
This increase was driven primarily by digital dentistry boosted by strong sales of our new products primes can prime mill.
The health care business, so strong growth in the quarter as demand for wells, but medical supplies maintain a positive trajectory throughout the entire quarter.
Well, there is in technology and equipment, including implants experienced lower sales versus last year.
The result of the lower demand environment due to cobbett 19 pandemic.
Acknowledge that equipment operating income margin was 21.4%.
Up 760 basis points as compared to the prior year.
This improvement was driven by favorable product mix due to higher volumes CAD cam products and productivity improvements, partially offset by the impact of lost volume due to cope with 19.
On slide 13, we show or business performance for the first quarter on a regional basis.
You as sales of 301 million declined 4.1 per cent compared to the prior year.
These represent a decline in organic sales of 1.2%.
In the U.S. market, we experienced growth in technologies and equipment, which was more than offset by decline in organic sales in the consumables segment.
European sales were 373 million down 5.7 per cent compared to prior year.
Organic sales were down 2%.
Technologies and equipment posted organic sales growth, while consumable sales were down in the quarter.
Rest of the words sales were 201 million down, 15.3% and organic sales were down 12%.
From a broad perspective, the any sales grew and consumables sales decline into first quarter.
On slide 14, we show our cash flow performance.
In the first quarter of Twentytwenty cash flow from operations was a use of 10.7 million as compared to cash flow generation of 29.3 million in the prior year quarter.
This performance was driven by a lower level of sales and a higher level of investment in working capital.
In terms of capital expenditures, we spent 25.6 million in the first quarter down as compared to 33.9 million last year.
As a result of the impact of Cobbett 19 on our normal operating cadence, we expect capital expenditure this year to be lower than we had anticipated in our planning process.
Having said that we continue to execute on our key projects.
We will ramp backup to normal levels as soon as appropriate.
Given the current circumstances. It is unlikely we will span our targeted amount of 4200 50 million in fiscal year Twentytwenty.
Free cash flow was an outflow of 36.3 million in the first quarter as compared to an outflow of 4.6 million in the for in the prior year.
We returned a total hundred 62.1 million to shareholders during the quarter, including dividends of 22.1 million and share repurchases of 140 million.
Let's go now to slide 15, well talk about some of the initiatives we have implemented to ensure that our balance sheet and liquidity remained strong throughout the cycle.
First let me highlight that the global nature of our business provides a natural hedge to market disruptions as they cycle through regions around the world.
Additionally, our wealth effect healthcare business.
Well as demand patterns in that space did not follow the dynamic experience in dental through into first quarter.
In response to economic situation and the related lowered than demand environment. We implemented a set of actions include into following.
We began by adjusting production output, we reduced spend temporarily in many areas.
While our goal is too much fluctuations in demand and cost reductions. It is hard to do it immediately given the high velocity of revenue decline we experienced in late March early April.
We also move quickly on various financing initiatives to enhance our liquidity and ensure the funding of a strategic projects.
We added three.
354 million in committed lines of credit.
Including or could revolving facility of 700 million and cash on hand. This brings our total available liquidity to $1.3 billion.
As part of our overall liquidity strategy. We also decided to drill down 700 million from our credit lines. We have no immediate need for this cash did draw down is entirely a function of a risk management plan given the uncertain macroeconomic macroeconomic environment.
In addition to cry to committed lines of credits are investment grade rating keeps has the ability to tap into the capital markets for long term funding if we so choose.
With respect to business trends for the remainder of the year I'd like to make a few comments.
First let me start with current volume trends.
While we see positive signs of reactivation incidentals paid in certain regions sales trends in the second quarter remain substantially lower when compared to last year and pre crisis levels.
In the U.S. and Europe with some minor exceptions dental practices limited their activity to emergency procedures.
Assisted with older data published on the category at least initially in the North America and EMEA regions, we are seeing volume off 60% to 80% for the month, depending on the region.
In the U.S. colleagues 19 really back began to impact dental offices in made in mid to late March.
As a result of the implementation of several social distancing guidelines, we saw a sharp drop off in patient traffic, which persisted through the end up the quarter and into April.
In the last week or so states have began to allow offices to open and conduct non emergency procedures. However.
There is still many gating factors, including the availability of personal protection equipment.
Overlapping regulations and association recommendations on patients willingness to go back to the Dennis.
In Europe, each market behave slightly differently through the course of the pandemic for example, it'll be in Spain were impacted earlier and more severely than others in Germany. Dental office is generally remain open. However, we did see a falloff in patient traffic and associated revenues across all.
Europe in April.
With regard to or geographies, we are beginning to see some signs of recovery.
When her last earnings call. We said that we had an exposure of approximately 60 to 70 million in sales in China, Japan, and Korea, and Taiwan stemming from prone of ours.
Then the dental marketing China has played out pretty much as we anticipated.
It is its load road back, but China is now tracking a lot better than what we show in January and February.
Japan did a little bit better than expected most dental offices in Japan remain open but patient traffic is low my sense is that rest of the were generally appears to be further along in the process than the U.S. and Europe, let's remember that this region represents approximately 20% over revenue base.
Last point I want to highlight regarding trends is that in light up the economic and business uncertainties caused by copies 19, we're not in a position to produce reliable updates to guidance at this time.
In closing.
We believe that the financial strength of fan supply Sirona at the onset of this crisis combined with the operational financial and strategic actions, we have taken so far.
Positioned us well to remain the partner of choice there are customers need in these difficult economic environment.
With that I will now turn the call back to dawn.
Thank you Jorge now moving to slide 17.
Earlier, I mentioned, our five priorities in the current slowdown these our employees our customers our financial strength the cost containment actions, we've taken and continue moving on our strategic priorities.
On slide 18, our first priority was to ensure the safety of our employees. We have a comprehensive program around safety NR sites, we've eliminated travel and meetings and have look too many of our employees working from home.
We have taken precautions at sites that are still operating and have adjusted policies that allow us to identify risks and help manage through them.
To date, we've been fortunate that the number of employees. In fact, it has remained low due principally to the rapid and comprehensive measures we have implemented to ensure it effective infection prevention processes in every workplace.
I would also like to take this opportunity to thank the entire Dentsply Sirona organization for their superb work during this pandemic.
They have remained customer focused resilient and positive the entire time.
Our second priority is maintaining our strong relationship with our customers.
During these challenging time dentists are looking for organizations that are able to partner with them and assist in riding out the storm.
We have responded by remaining open for business and ensured that our systems and infrastructure have been able to meet customer demand. Despite the fact that we significantly reduced our supply chain activity.
Our technical service function has remained open throughout the pandemic in order to address customer needs around the world.
We've also worked hard to stay close to our customers. We have focused aggressively on the virtual world and to date have been remarkably successful in doing so.
During the month of April in the U.S. Dentsply Sirona Academy Web site offered 81 courses with over 33000 attendees.
We saw similar success in Europe and in particular in China, where we were able to host 66 live webinars that generated over 650000 views.
All of these efforts created an important touch point and served to reinforce Dentsply Sirona is leadership in clinical education.
Hey, also described the actions we quickly took around liquidity and cost containment.
During this period, we also focused on making progress on the strategic initiatives that will best position Dentsply Sirona for the long term.
These include delivering on our new product portfolio, pushing hard to advance digital dentistry and building relationship with our customers.
Looking to the future while it is hard to predict the exact shape of the recovery. We believe that the long term fundamentals of the dental market remain positive.
Short term, we were thinking about the recovery in stages. Those stages include emergency procedures, only resumption of elective procedures addressing the backlog of postponed elective procedures and then ultimately the resumption of normal services.
The speed of that recovery will be based on both the opening of dental practices and how quickly patients can regain their confidence.
We are optimistic that dental practices will be able to adapt to the new environment.
Dennis have always put patient safety onest for decades, Dennis have been intensely focused on infection control and we're confident they will adjust to the new circumstances quickly.
We're already seeing the Ada and other dental associations around the world offer protocols and guidelines that will facilitate a safe reopening.
Initiatives like waiting room management conspicuous cleaning all staff working pp at all times and using question here is to highlight risk will help engender patient confidence.
Plus run is working with Dennis everywhere to assist them with their individual infection control needs and requirements as well as communicating to their patients.
I mentioned earlier that we are starting to see signs of recovery in countries. The first saw the pandemic. So those signs show us a few things that offices will reopen but takes a little bit longer per patient traffic to recover in fact, we believed that the recovery and patient competence will be the key to the speed of the overall recovery.
Our expectations are that the more functional procedures return faster things like restorations and Endodontic procedures will lead we expect implants in ortho, which tend to be more elective to come back a bit more slowly.
Driving or equipment business.
From original perspective Asia Pacific is further along and the recovery process and as states in countries open we expect that both North America in Europe will see a measured return.
As Jorge indicated at this point it is difficult to reliably predict the next few quarters.
In conclusion. These are Unprecedent times for all of US dense place around is taken rapid action around or employees safety enhancing our relationships with our customers improving our liquidity, while executing abroad program around cost containment.
During this period the company will continue driving against our major strategic priorities.
We're starting to see improvement some countries that have begun to reopen the recovery is expected to be a slow process.
Long-term the fundamentals of the dental market or sound and dense place around that has the financial strength product portfolio and the global reach to allow us to succeed and went in the future.
We hope you remain safe and healthy and with that we will turn it over the questions operator.
Ladies and gentlemen, it's you have a question or comment at this time. Please press the star than the one key on your touched on telephones. If your question husband and search or you were saying we're suffering mchugh. Please press the pound key.
First question comes from John Block with Stiefel.
Right. Thanks, guys get morning appreciate the time I'll start with you I I guess you know last call you. Some really helpful. Colorado detrimental margin specific to the the once you lost revenue on eight packing and I'd get it things are moving around very quickly, but yeah. You sit here today. After somebody initiative you put in place is there any color that you're able to.
<unk> on the deck or middle margins, you know as we started thinking about things for two q. and three two.
Yeah. Good morning, Thanks for the question.
As both thought Don and I indicated at this point that is very very difficult to provide any sort of guidance for the next stop you corners up <unk>. What I can tell you is if you look at the numbers for Q. won we we came in very much as we were expecting.
And now we were able to take out some actions to try to protect our margins. Despite the rapid decline in in revenue.
I can't imagine is is really hard to match those two revenue decline and and cost at the same time to do much them in the short term will continue to do as much work as we can we are not Don indicated I indicated some will be actions, we're taking and we'll try to balance.
Our our margins into the future as much as we can but at this point given all the uncertainty is is hard for me to tell you. What we think we're going to be and keeps you accuse me.
Okay Fair enough. It and then going for you you know what help a color or what you things coming back quicker what procedures, you think are coming back quicker than others, but.
Bush in any granularity you from a a geographic standpoint in other words any data on what you know trying to look like in the month of April versus January or what Germany looks like versus Italy anything that you might be able to pass along as we try to think about some of the leading indicators coming out of this thanks guys.
Yeah, Hey, John Thanks for the question Hope hope you're safe in a healthy you know that.
I think <unk> you know kind of gave you a a bracket on what we think the globe looks like and obviously, there's there's <unk>. There's countries that are higher in that and lower I mean, you know if you look in Italy and Spain.
They they have been shut down in their shut down hard obviously Asia Pacific is opening up we're starting to see stuff in the U.S. open up but you know there's two things John maybe they'll give you a little help you know I.
I suspect we're gonna get questions about why did consumable seemed to come down faster and the q. than than what you. What we saw in technology and equipment and I would tell you some of the stuff that we see you know is there's a difference between retail and wholesale well interestingly. When you you begin to see start up you you might see a reverse of that true.
And where you know the things that they stopped buying very very quickly are the things they're short on so that's that's the first thing that that we see.
The the second.
Point that we were trying to make is I think a lot of the discussion has been about.
You know what dental offices are open check one and then check too.
Is you know where are they in terms of emergency procedures versus moving into more elective.
Procedures, and you know I actually think there's a variable that and there's the one we're having the toughest time with is how fast do patients come back.
Because what we are seeing in Asia Pacific that the offices open faster than patient traffic returns. So you you know the the conversation in our mind has to be you know and it's numbers were starting to to really work and track is you know okay. The offices open how are they.
Operating you know as a percent of normal or the operating at 20% 50% of 100%.
And you know for us, it's really been become a function of by country tracking actually utilization versus offices open.
So you know in in our mind, that's that's something that we're all going to have to track and get a little bit more sophisticated around.
Thanks, guys.
Thanks.
Or next question comes from Steven <unk>.
Stephen you're a lot as often you finish your question.
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If your phone modest muted could you please on the line.
<unk> well, let's go to the next question. Please Kevin now we've got <unk>, We'll go we'll get feedback and <unk>.
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Our next question comes from title Peterson, which I.P. Morgan.
Hey, Thanks, Darn how are you thinking about cap banks once practices resume obviously a lot of dentists are individual practitioners hi, fixed cost, they're feeling yeah. The economic pain. Some curious you can touch on you know a their appetite for kept box. We also did have one of your competitors talk about increased interest in neutral oral scanners as a way to reduce the risk of infections.
Versus impression so I'm curious six you're seeing any you know <unk> and ultimately what is the studio relationship with P.S. shows how involved.
Hello.
Yeah. Thanks, Psycho you know it it is interesting as.
You know, it's almost counterintuitive, we'd sit there and say, okay challenging economic times, the Denis are going to cut the their capital spending back not what we've actually seen in terms of interest and you know we can track a couple of things by region. You know what what are people looking at and and our online things where have we been successful, creating one of one sales.
Pitches, if you will that are done virtually and it's all been around technology and equipment and you know, it's I'm not going to come out and say I think technology and equipment is going to lead but I I <unk>, what we've been encouraged with so far right now is that the interest in in digital production, if you will and and.
Internal scanners is a great example is just a a real game changer from an economic perspective, and I think you know <unk> I don't know if we want to refer to this as a pause a time off or whatnot. What we have seen as dentists have really been thoughtful about okay. I've had four weeks six weeks to work with my staff to think about what should be.
My practice be when we return and I'll tell you type because the interest in in in digitizing the office has become.
A topic that you know after infection control, it's actually the second most popular topic that we're seeing by country and you know the if you really go through it if you're going to do impression material and then you're going to send that to a lab you know you're potentially looking at a procedure that has two or three interactions with [noise] the patient.
Versus you know Chairside, which is basically one [noise].
You come in you know that you get scan than you leave with the Crown and the economics and the and the work flow productivity are are really important. So you know I I'm not trying to be deliberately dense, but I do think it's it's counter intuitive, but but we're pretty optimistic about how our technology and equipment.
Group will perform versus what I think expectation is.
And maybe a follow up on the productivity you know we have heard the guidelines on C.D.C. guidelines on otherwise had really you know in packet crackles efficiency.
Down 20, 30% and trying to remember patients that can be seen how much of an issue is that some from your customers and and then you mentioned the volumes off 60% to 90% in April can you just get you know some geographic color was on the U.S. Thomas Thanks.
All into the first question the second question first.
I actually think I think I think we said 60 to 80 and that's a that's a global comment.
As as part one and then you know the C.D.C. guidelines.
Psyche almost have to look at there's at least in North America. There's three set the guidelines there's the ocean guidelines a C.D.C. and then then then there's 88 recommendations.
You know and right now I don't think we reliably know what the ultimate impact on productivity is going to be.
Just because you know I think people are getting used to it we've been talking to Dennis you know, we and literally we talked to I was with a group of about 1300 yesterday I think they're getting used to it I don't I don't view the change in what work flow will look like as a as a permanent decrease in the.
Mount of patients.
You know what the Denis are telling US is and you know most of them only been open for a week or two it.
They got to do a couple things I mean first is how do you do waiting room management, you know, whether it's having people wait in cars and they get text when they come in.
How how do they perform the questionnaires the questionnaire done in the office or not and then there's a whole discussion about cleaning and you know what is conspicuous cleaning and infection protocols look like I think ultimately you know dentists have been you know if you go all the way back to like HIV AIDS.
And if you look at when hepatitis became an issue you know dentists have gotten pretty good infection protocol <unk> I don't I don't look at.
The current changes as permanent Detriments.
In in the you know capacity if you will have the dental offices and then you know in the D.S. Those it's really interesting to the you know the Dsos I think have been taking a very measured response you know we're going to open you know if you look at the the big three and even if you kind of go to the kind of the second size you know the kind of the 52.
<unk>.
You know they've been pretty cautious we're we're going to do emergency procedures, only and then we're going to open it up right now they they really haven't opened up like hygiene. If you will you know there's been a lot of discussion about you know ultrasonic route planning and production of aerosols in it you know as a result, I think they're they're going to gradually bring the high jenness back.
They'll focus on a mechanical scaling and route planning, but you know our conversations with all of them have been hey look it's going to be a gradual return it will start with emergencies, we'll get into critical elective procedures, you know I root canals and things like that they'll bring hygienist back you know they're optimist.
There'll be able to bring a hygienist back in the summer and you know they'll just do it step wise.
Okay.
Thanks, Tyco be safe.
The next question comes from Michael Churning with Bank of America.
Good morning, Thanks for all the colors, so far I thought I want to pick on me equipment question, a little bit in terms of the goodwill impairment you said it was tied to re adjusting reassessing put the level of demand.
What was the process you went through in terms of looking through and brisk waiting the order book in terms of the decision to take that approach. So clearly no matter what it all your comments seem to think that there is some level of temporary nature to this who knows how long the temporary nature will be but in terms of that impairment. He just walk a school.
A bit more what the thought process was behind what you saw cross your booklet business to get there.
Michael Good morning. This is for him you take out that question. So.
Every quarter you know companies have to go through an analysis of their entire balance sheets and so this quarter. We we follow the normal process and when you look at the the asset value or the value of all of your reporting units. Some units have more head room that.
<unk> with respect to goodwill and intangibles and so forth and not when we did our normal process in in this quarter one of the recording units that historically had had a smaller headroom as we did some sensitivity analysis and look at <unk>.
<unk> outcomes for the for the foreseeable future. We concluded that not one specific reporting unit equipment and instruments. This is not the digital aspect of our best not CAD Cam is on the equipment an instrument peace. We we concluded that based on our sensitivity analysis.
<unk> range of outcomes for the future. It was ruined and we had to adjust aren't carrying value for for that specific unit and that's how how we came to this conclusion I don't think is a.
The result of any significant changes to our views of equipment in general for the future is very specific won a report on the unit and as a as a result, many scenario analysis and out and sensitivity analysis that that that we did.
<unk>.
One quick conditional question, how do you think about the value of something like one D.S. and the rural out you have that program. It against the backdrop of this current demand pause it and how does it look coming out on the other side.
Yeah My it it's been very interesting that.
You know originally we thought okay. Our sales guys aren't going to be able to talk to Denis Denis are are going to forget about things like one D.S. and and it's been the exact opposite you know our average call per day in Europe and average calls per day in North America have actually increased because you know there's not a lot of windshield time and then the.
The number one thing out of the bag right now in talking to them Hey, Doc had you signed up for one D.S. and you know if they had this is where you are and hey, as we think about reopening and may or June or July. This is the easiest way for you to maximize one D.S. so I.
I was lucky enough to have a conversation with most of our U.S. cells leaders last week and you know there. They feel that there is an excellent level of awareness of one Diaz and you know the idea of starting up you know restarting is an opportunity for them to again, we think take advantage of what's a trip.
Program.
You know again, Michael just I think there there was I remember, we midwinter, having a lot of conversations about one D.S.
Again, we're not asking people to purchase incremental to what they normally purchase we're just asking them to switch what they purchased too too dense probably sirona and and that is going to give them a real opportunity for meaningful discounts on on the equipment side of the business and and we've been again, we've been have a lot of what we think are pretty positive conversation.
Runs around equipment. So you know we again, we we think are strategies right. You know, we're obviously adopting the message to be a little bit more focused on like the restart.
But we think we've got some pretty good tools and place around office productivity and things like one D.S. to let people start up.
Thanks.
Mm.
Next question comes from Errand, right with credit Suisse.
Great. Thanks, So two part question their wines and you remind us your experience during the most <unk> recessionary environment and how this may or may not play out differently in your view and then and escape for instance, like taxes and all their that have started to open up at limited capacity.
Are you actually seen practices often are they waiting to feel more comfortable are they waiting for sufficient P.P. supply what percentage dental practice is actually still closed in the U.S. and and looking at the employment numbers. This morning, I mean dental practices are obviously an area of under pressure how realistic is it that things can really recover it this year. Thanks.
Thanks, Aaron you know it's interesting if you go back to 2008 and and we've done it you know our business a little bit different you kind of had sirona at the time, which is very early so you know they were they were growing very rapidly. We we've looked at the total equipment market and you know basically what what.
Our experience was that as long as we stayed focused on productivity. We we didn't see a a real drop off in technology and equipment on the consumable side, Aaron and and again I'm not the greatest historian, but we've been doing a lot of work going back and looking at at that and actually the nice thing about.
Part of the then spy history as we can go back to 2001 as well.
Typically what we see is that with the unemployment numbers. You know you. Obviously, you know heading to a recession people actually use their health benefits you know, whether it's cobra that keeps people around for 12 to 18 months people recognize that they may be entering of time period, where there's not benefits and they they tend to use their benefit.
So our experience says that dental actually lags the economic news in terms of it doesn't doesn't fit you know, we we don't see an immediate detriment, but on the same side you know on on the backside of a recovery, we recover a little bit slower because you've got to get people back and jobs to get their benefits.
In terms of Texas, if you know and obviously, we're tracking stuff by state and and without giving you too much specificity. The the offices are opening I mean, the dentist will tell you that they're opening you know we don't have exact numbers by by the exact state you know that's that's a representative sample but.
What what we see is that the Dennis Oh, you know they they open.
The offices haven't been opened in four to six weeks. So there's almost a cleaning out they have to retool that what the dentists have been telling us they have to retool there waiting room, you know because there's got to be social distancing stuff like magazines, and and and all this stuff and waiting rooms out to be taken out you know they have to put you know where you go out and you pay you know they've got to be installed.
Shields and whatnot, so they're opening and they're actually doing a lot of adjusting if you will but then the what we've seen Asia Pacific, which is starting to be echoed in what we're hearing from the U.S. Dennis the offices will open faster than patient traffic returns to normal you know there.
Everybody we've talked to said they don't have as much P.P.E. is as they would like but it's getting better every day and you know our discussions with you know or distributor say that you know as we get into the summer they should be able to manage that so.
Adding that all you sit there and you say <unk> the offices will open. The P.P.E. situation is is you know we think a short term issue that's not going to really result in slowing of traffic and it's going to be much more a variable of of when patients return to the full norm and then you know look you know we saw the jobs report and.
Obviously, it's <unk> should be concerning to all of us.
You know our our sense of it is that again history would tell us that we're we're a lag in terms of people tend to use their health care benefits and then.
Usually when we come out of it we come out a little bit slower. So you know hope hope that's helpful.
Thank you.
Alright, X. question comes from Elizabeth Anderson a record.
The Hey, I think so the question I was just wondering if you guys are seeing anything and turns like changes in payment terms or discounts from customers. You. They're requesting are you guys are offering that.
Thanks, Elizabeth I'll I'll take that one and if where he needs to answer any color. You know look we're working with our our dealer partners all around the world to help the Denis.
You know, we're putting programs together and and we will put programs together things you know open up.
But in terms of you know a lot of changes in payment terms and you know that that we're seeing or impact on our a are you know today you know we haven't seen it and it's it's an area focus for US you know overtime will not change, but it may but ultimately you know right now we feel pretty good about it we are putting program.
In place it would be if we do offer extended terms and whatnot that would be self paying because we would take that out of you know if we're if that's the marketing charge.
Cut another marketing program on what you want to add or.
I would say and this type of circumstances is that it's not unreasonable to expect that there there there will be some not a general Bob.
We are working very very close or with all of our customers and having.
<unk> and as such Donnie indicated so far we haven't seen it if they came back but I you know that some of that what will happen over time and.
I think that trends are good so far.
That that.
Bigger picture question and.
Say, what you know dominant player and the manufacturing industry, which is generally very fragmented how do you see over the longer term the possible change and competitive situation Che shaking out.
Yeah.
You know it's it's it's interesting you know we've we've been asked to lie about like they're gonna is this going to accelerate consolidation or whether it's the D.S., though side or manufacturing side you know.
We think the trends that had been going on Elizabeth are going to you know continue I think this dislocation area is really going to probably accelerate <unk> it'd be nice yourself, you know again I think.
Some of the smaller.
Companies without as big a balance sheet maybe.
Maybe press a lot harder than <unk>. So we looked at as an opportunity. We think the consolidation is going to accelerate and we think we should be a net winter in that situation.
I just.
If you're you're not talking at at this time.
[laughter].
Thank you.
That's what I was was it and that might be the last the last one thing you know mid winter when we got to see a bunch of you guys.
Last big Dental show before everything shut down.
The next question comes from <unk> with Goldman Sachs.
Good morning, Don sorry to go back to the the April comments, but I'd be curious to know how consumable you know versus technology kind of trended in April relative to that <unk>, you kind of see similar trends in both segments. There was one you know hold a better than the other.
Hey, Nate hope, you're you're doing while.
In in April they performed about the same.
<unk>, there's two things I would point out that when we tried to give you a little bit of color. If if you look at how the quarter finished and and if you look at there's a change in in how consumers perform versus technology and equipment you know.
The the quarter numbers on on T.N.E. were were actually pretty good.
Basically there there's a lag affect between what goes on at retail and how wholesale manages that so you know we we think you saw consumable get pulled down because that's a that's the lever that the.
Dennis pull the fastest and obviously our deal with partners could react to that but what we're seeing as countries start up you know when we've seen this in in Asia Pacific and other stuff you you see a reverse of that so you you would see things they didn't order as they were shutting down or things they need to open up so you know over over a longer period of time.
You know, we don't think there's a change in trend. We we think there may be a change in timing around consumable sacrament and how fast consumable is we'll come back up and then you know again in in April on the global basis. They performed pretty similarly, there there was not not a big change, which we actually are a little bit.
Optimistic about because you know we're seeing capital expenditures in places that that we're not disrupted.
Okay, Great and then you know looking at those stages of recovery that you outlined you know I appreciated there's a lot of uncertainty, but you know do you have a sense of how long you know it could tell you the kind of progress through those stages and that's something we could see there'll be a bit more gradual potentially <unk>.
And the end of next year.
Yeah, you you don't it's a hard hard question to answer I mean, 'cause it extend into next year yeah. It could extend into next year. You know I think I think the the only thing we were trying to do with the stages and yeah.
As we sit inside you know what what are we trying to do and and and look we said, let's take care of our patients, let's make sure we're talking to our customers.
You know, where he said a couple of times, we're trying to <unk> sink manufacturing to demand and you know as such you know you don't just call up on a Monday and turn a plan on so we've been trying to be.
Thoughtful about that so the stages, we actually have outlined those stages and we've outlined the regions and you know right now where we are is pretty much everywhere around the world people are doing emergency procedures and you know we we tend to think the emergency procedures is is 10% to 20% of of all procedures. We are.
Starting to see move back to elective in all around the world and that's that's the important stage for us to start seeing in North America, and <unk> and as I've said, a couple of times today not to be dead horse, but you know, we think offices will open faster than patient traffic returns and.
<unk>, whether this is a three month returned to normal from from consumers are a six month or a nine month. It's it's really really difficult to say, which is why we've kind of declined on providing specificity around a quarter to quarter.
Thanks for the comment.
I think they'd be safe.
Next question comes from.
<unk>.
[noise]. Thank you the money guys dot or k., either one I guess a would like that cash flow question start just how should we think about buybacks and I'm in a in this environment I know the emanate topic was broached.
Earlier in the call here, but just as you think about conservation of capital versus going on the offensive in some areas or even using cash on by back from that just how should we think about the next couple quarters.
Yeah, I morning, Thanks, where the question.
Again, I I'm going to refrain from talking about the next two quarters, U.P.N., now cash flow or or or capital employment, but I would tell you.
<unk>.
So if he perspective, our capital all location has.
Thinking has not changed from a long term perspective.
Point, we we're not changing that in the short term given the market. This location is that we are old facing there are priorities. There are higher right now and and cash conservation is is a very important priority now we want to preserve cash so.
We can actually invest in things that really matter for us to be competitive as or even more competitive we come out of the on and off the cycle. So re investing in or business. <unk>. We are we're not stopping that we as I indicated it might prepared remarks, we are we we have kept.
Our investment priorities very much and touch we are important projects for eyes that will yields significant value in the future and we we are still investing on those and you know as we as we have more data points over the next up several months and quarters, we will we adjust.
The priorities and we'll we'll try to go back to him more normalized balance approach to our capital deployment.
Thank you and done maybe one last question just got a broader market.
Thoughts you know you do sell some sterilization equipment I'm, assuming there's going to be increased focus at these offices on a lot of products like that are there any other products and your portfolio or in the R. and D. pipeline that you could <unk> towards and and think about kind of a an American secular trend in the office is number one and number two as these offices.
Spend more on P.P.E. looks questionable on whether or not reimburse, let well incorporate that higher P.P.E. cost does that squeeze out the focus on premium consumable than your portfolio. How you respond kind of in an environment where costs in other areas you don't compete might be going up for these guys.
Thanks.
Yeah. Thanks, Thanks, Jeff.
You know, there's there's a couple of things in there, let's let's pull apart we do sell some infection control stuff. It's not huge you know just in terms of you know the size of the overall portfolio, but <unk> I would tell you there's gonna be some stuff that we're starting to see you know we've got you know high volume evacuation equipment.
And some other stuff that we think is going to.
Do pretty well you know we'd had a lot of interest again, we're we're kind of judging interest in in stuff by what the Denis are are actually attending Webinars and you know aerosol management is is a topic that's gotten a fair amount of of a interest you know the the second thing I would tell you as you know one of the things that we made.
Big deal about with Prime scan was that it's a sealed system and disinfecting that is relatively easy versus things that we had done in the past and as a matter of fact, we we now have come up and it's we think it's going to result in something that's that's a very important to us we have a temporary shield that that makes it.
You know it goes right over the probe and you know it's disposable. So we think that's very good. We've also move very quickly into single use.
Packaging, which we think you know allows you to sterilize something you know so that that it will aid the dentist. So when you look at our end, though and a lot of or implant products moving to single use packaging is is we think is something that is we've been able to do because we've manufacturing expertise and and everything. We're hearing is that's very important.
In terms of does the incremental P.P.E. cost you know create downward price pressure on premium consumer bowls.
Yeah, I could I, Hey, look I think the the dentist office is is going to be taking a hard look at their economics from top to bottom.
One of the things that that we will stress and and something we've always stressed is is now the time when when you're really going through a challenging time to change your reliable brands that you've been using an important procedures and you know look we've been competing.
In against a private label or you know white label set of competitors for a long period of time, and we feel that we can kind of old our own.
A lot of that's going to be innovation and then the last kind of question you asked in there I think I tried to unpack. All that is you know do we think infection control should be an area of future R. and D. development. It's <unk>. It's always been an area. We've looked at I mean, you know, we we have a lot of infection or duck unit and and other things.
<unk> and as part of her innovation package that we're looking at it will it take on a higher priority too early to say, Jeff, but I I would tell you.
Right now and and I said this in my prepared remarks, and where I mentioned it with around cash flow.
We're we're going to pull out right now and and one of the reasons. We were trying to protect liquidity is because we we believe that ultimately the digitization. A dentistry is is going to be as important as any trend you know short term everyone's going to have to get used to P.P.E. and infection control at different levels.
But if you know that puts pressure say you know there is a deck Roman and an overall time that the dentist can spend with patients because of incremental P.B.U. requirements.
Well, they're going to on the other side you you know, they're they're going to be looking for ways that how do we incruse throughput and we think things like Sarak things like the software we've developed around implants and other things will become increasingly important.
Thank you.
Thanks steps they say.
The next question comes from burning through a lot of injuries.
To request for for a first just on the piano Yep help us understand the flexibility.
How much of the cost structure is variable and then what are the what exactly other prerequisites that you'd want to see before restoring guidance because I condition. The visibility remaining low for some period of time.
Thanks.
Thank you for the question Yeah on the on the first stop part with respect to fix up versus variable you know I think the short term.
Typically I would say for for our business you could have.
You know between.
5% to.
One third of our cost being I would say very variable in nature.
And now, but as you as you go through a cycle.
A lot of the fixed costs that you have you can become variable and and that is up <unk>. What we are trying to figure out now and as part of that analysis, we actually have already made some decisions that essentially.
Change some over a fixed cost into into variable in the short term I will do more of that and I think most companies are trying to figure that out and and the the idea as I indicated before as.
Trying to match as as close as possible our revenue with our cost structure and that is something that is why we have been as a company always very much focus on on on margins and so we have to balanced margins, we need to balance that with the investments for the future and so there there's a net.
<unk> scenarios that we are looking at to ensure that what are the decisions, we make end up by resulting in.
The best interest of the company for both that the short term and a long term.
With respect to to guidance I think I I don't know exactly when we are going to be <unk>, but let me tell you a few elements that I think would be important for us I think as we have more conversations with that with our customers with our dealer partners and.
With just stop overall all the stakeholders in in this industry will will understand better the Mccain <unk> recovery will start having a better understanding for a future orders and how dentists are going to manage their up capacity and.
How they're going to we open that's going to be a very important element and this analysis of course now we have to look at overall macro economic conditions, what is happening with with overall economies and now unemployment levels and there is a series of elements that I I think we.
All are going to be looking at and at some point, we'll know okay. Now the range of potential outcomes opt for the next six to 12 months is within a reasonable range and at that point, we will be in a position to share that range.
With all of you clearly we are not at that point right now.
<unk>.
Mm.
Or next question comes from <unk> Krieger with William player.
Hi, Thanks, very much Don too quick ones, you mentioned I think that you tend to think that emergency procedures are maybe 10% to 20% of the of the typical practice how's the how's your end of business holding up I I would think that's mostly emergency related.
Yeah, the and Endo businesses is mostly emergency related and and by the way some of the rest though.
Seizures, I mean, if you've got a crack too if you have to get that taking care of.
Endo and those been okay.
And by the way John when when we say Okay. You know there's there's okay in normal times and then there's post covert 19 normal times, but if you were to look at the business. That's been the most consistent through this the the the endo businesses Bend the most consistent through this process.
Great. Thanks, and then maybe you could go back as you mentioned you know seemingly normal times back in Chicago in mid Winter what was your early experience like around the plan now launch just curious if if he were seeing uptake mainly from people that had some of your older males and so those are upgrade sales are where you actually saying.
Maybe a bit of a resurgence in convincing practices to go full chairside.
Yeah.
I I will tell you the the Prime mill. The response to Primal was was really good we were very excited and you know look mid winter was it was a great example of that.
And our emphasis on Prime mill was how do we sell full chairside systems I mean, that's that's our first lever that we always go to how do you sell pull chairside and we were pretty successful I mean, if you look at the pricing and if you look at how we package that it. It was designed for us to be pretty aggressive around pulling selling full chairside and we were pretty successful about that.
You know coming coming out of it John coming out of you know the the <unk> Challenge I, we're we're going to be banging very hard on the idea that full chairside, where you have a opportunity to take care of a patient in in one visit.
Is going to be pretty important and if you look at this speed advantages of Prime mill. You know, we we think it's going to be a pretty important part of our overall story, but we were we were very excited about the initial reception to <unk>.
Great. Thank you.
Our next question comes from Kevin Caliendo with U.B.S.
Hi, Thanks for taking my call Oh.
I guess this is for <unk> can you talk a little bit about the salesman accounting cycle for equipment sort of how you record the revenues and any chance that changes going forward, meaning like is it possible you make it.
You have payment terms extended payment terms in the light, but is there anything that could change with that going forward post Kobe.
And then the second question I had was this is getting back to the first quarter. You think you said January and February we're tracking in line with expectations can you tell us what you thought.
Consumables and equipment would've done x. coconut.
Thanks.
The morning, Kevin.
The.
The way we were our equipment sales is is similar to the way we record every all her cell within the company, including consumable so as there is no.
There is no the federal revenue, we as a straight off the sales. So there's nothing other than we do different in that case.
<unk> County change can that changing the future at this point, we're not thinking about that I. There is some companies that.
Provide financing for equipment, we we don't do that today so.
So that that's not not in our plans right now.
The.
January February overall, Donnie, indicating I indicated based on our internal planning based or an internal forecast.
We we came out of a strong you for 19.
And we were seeing trends in Q1 are we were expecting she wants to perform very much in line to technology business doing extremely well with crimes canned your lunch AFOP Prime mail doing very well and.
In both January February and consumables trendy and also very much in line with our expectations for the first two months <unk> of the quarter and then towards.
Me March is when we started to see a rapid decline in into consumable business. The out thinking all you business CAD Cam in particular continue to perform well throughout the first quarter and Don indicated now going into April may both.
<unk> segments are are trained in in in in a similar way.
Yeah, and the only the only thing I would I would add Kevin is.
Consumable <unk> <unk> <unk> you don't care, if you look at the the difference and we said this and are prepared remarks in in the corridor you. It looks like T. any kind of kept going and and consumable came down faster. We we think that was a function of timing not a function of of demand it'd be it'd be if you think about what goes on at retail versus.
Wholesale you know obviously as the as our dealer partners began to see.
Challenges in the dentist office and the you know the Dennis.
Stop ordering the things you stop ordering of the things you used most frequently so we we think consumers was impacted fastest there what we're seeing as as places like Asia Pacific Open up you see a reversal of that you you see actually people come back in at the on the consumable first and and you know.
It's it's.
So we we look at the the the disparity in the performance as much more of a function of timing than underlying demand stuff and I will tell you. We were very happy I I think where he said extremely well very happy with all the the quarter was going on both the technology and equipment side and the consumable side, we'd started to see some good trends in the fourth.
Border around consumable, which are carrying over into the first quarter.
That's helpful. Thanks, so much better.
Thanks, Kevin.
Our next question comes from one channel tangible moving huh.
Oh, Yeah picture, taking my question, Hey, down I, just want to follow up on some of the comments you actually just made a you know with respect to Asiapac for example, it sounds like globally. The the volumes are turning down 60 to 80, but is intuitive as you would think that maybe eight bags doing a little bit better since they closed earlier and opened first and then and then to me and then.
Maybe north America sort of last and assuming that's the case some kind of curious specifically about the reboot and Asiapac and and you talked about maybe certain areas of digital that you'd expect to come back faster, maybe not being as economically sensitive as we think we've made the implant worth, though maybe coming back a little bit slower.
Can you talk about the rebate on the equipment side in Asiapac, and what you're seeing and if there's any numbers you feel comfortable put around that.
[noise] Yeah, Glenn Thanks for the question.
You know here's here's what.
Pack you know first you've got to think.
Think about Asiapac as not asiapac in in our mind, there's there's almost three chunks to there's what went on in China. How do you think about kind of things that have reopened Hong Kong Taiwan.
And Korea, and then Japan is a is a big business for us and by the way I think core has said in the in the prepared remarks and on an aggregate basis. That's you know that's less than 20 per cent of our our total portfolio, but what what has gone on in China <unk> again.
It's exactly is what are prepared remarks were that we're we're seeing consumers comes back.
We you know again, you're you're going to see kind of functional procedures come back pretty quickly at least on our side. We we're not seeing you know or throw in implants as the first things back and we've we've been pleasantly surprised at how technology and equipment is <unk>.
Warmed kind of in line with with everything in terms of like you know kind of that next group when when you think about Korea, Hong Kong, Taiwan, they they seem to be a little bit further in front.
Again, the businesses are performing kind of in line with each other and again that in our mind, that's kind of a little bit counter intuitive because you know the expectation would've been the technology and equipment would've come absorb we're we're seeing good solid demand now again, we we have worked very very hard to talk about the economic benefits of the.
Work flow efficiencies and other things and that's the Ben very it's resonated well with with the patience excuse me with the doctors in that area, Japan was kind of a third circumstance, where they never really shut down.
You know the dental offices, you saw a a slowing and patient demand and what we saw was technology and equipment consumable performed similarly implants kind of slowed.
So you know and.
That.
In in our mind you almost Japan is is almost a little bit of an outlier. So we've been watching how China Minnix, you know kind of Korea, Hong Kong, Taiwan, and you know if if those are a harbinger of the future. You know you see Dentist's office opened you see patient recovery a little slower than.
How fast the dental Dentist's office open you see functional comeback the fastest.
But actually details.
Thanks, Glen stay safe.
Our next question comes from each end with H.C., we're in right.
Thank you for taking my question.
Do you expect the recovery trajectory for dentistry practice to be similar between different regions, although in different Tom crimes.
Yeah, you <unk> I think the answers probably yes, you know I.
Again, we're we're trying to I I wish I I I wish that that we could see you know cute to Q3 more clearly.
What we have seen is that the on the way down things looked very similar all around the world you know as things shut down how it impacted businesses. It looked very similar what we're starting to see at least in Asia Pacific, which is a wide variety of of circumstances.
It seems to be coming up in a similar way.
The thing that we we can't we can't predict though is how fast does this all come back.
Okay. This display plan to provide any service to help dentists practice returned to normal operation sooner such as facilitating the Kobe 19 testing, particularly saliva based testing ink Dentist's office.
No.
I think it's essential that doctors, you know get access to P.P.E.N. and if they feel appropriate you know if they want to test their staff, so that they're going to need access to point to care, but it's not an area of expertise for US you know okay. We just not something we do.
Okay. Thank you.
Thanks, each and.
And I'm not showing any further questions. This time electro him the call back to John Sweeney.
Thank you very much for joining us today, we look forward to updating your next during this conference call.
Ladies and gentlemen, supposed to conclude today's presentation, you may know disconnected have a wonderful day.
Yeah.