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Sirona Dental Systems Inc. (NASDAQ:SIRO)

F3Q09 Earnings Call

July 31, 2009 8:30 am ET

Executives

Jost Fischer - Chairman, Chief Executive Officer, President

Simone Blank - Executive Vice President, Chief Financial Officer

Jeffrey T. Slovin - Executive Vice President, Chief Operating Officer of US Operations

John Sweeney - Vice President of Investor Relations

Analysts

Brandon - Bank of America - Merrill Lynch

Gregory R. Brash - Sidoti and Co.

John Kreger - William Blair & Co.

Glen Santangelo - Credit Suisse

Ross Taylor - C.L. King & Associates, Inc.

Jeff Johnson - Robert W. Baird & Co.

Tycho Peterson - J.P. Morgan

Operator

Good day ladies and gentlemen and welcome to the Sirona Dental Systems third quarter 2009 earnings conference call. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call, Mr. John Sweeney, Vice President of Investor Relations.

John Sweeney

Good morning everyone. Before I turn the call over to Jost Fischer, Chairman, President, and CEO, Sirona Dental Systems, I need to inform you that information in this conference call contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are information of a non-historical nature and are subject to risks and uncertainties that are beyond the company’s ability to control. The matters discussed in this conference call are subject to various factors which could cause actual events and results to differ materially from such statements. Such factors include uncertainties as to future sales volumes of the company's products; the possibility of changing economic, market, and competitive conditions; dependence on product, dependence on key personnel, technological developments, intense competition, market uncertainties, dependence on distributors’ ability to manage growth, dependence on key suppliers; and other risks and uncertainties including those detailed in the company's filings with the Securities and Exchange Commission.

The company undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this conference call. You are cautioned not to place undue reliance on these forward-looking statements which speaks only as of the date of this conference call.

Please note that in today’s call you’ll be presented with additional financial information including non-GAAP financial measures under Section 101 of Reg G of the 1934 Exchange Act. In addition, during today's conference call, management will comment on guidance for fiscal year 2009. Please note that all statements made in connection with the guidance are based on current expectations and actual results could differ materially from such forward-looking statements.

Now, I’d like to turn the call over to Jost Fischer, Chairman, President, and CEO, Sirona Dental Systems.

Jost Fischer

It is my pleasure to welcome all of you to our third quarter 2009 conference call. Joining me today are Simone Blank, Executive Vice President and CFO and Jeffrey Slovin, Executive Vice President and COO of US Operations.

I am pleased to report that fiscal 2009 is progressing as planned. As a result of the solid performance we delivered this quarter, we are reiterating our guidance. This reaffirmation implies continued strong performance for the remainder of fiscal 2009.

There are a few financial highlights from the quarter I want to bring to your attention. First, revenues increased 6.2% constant currency; second, operating income post amortization increased 26%; third, cash flow from operations increased 150% to a record level of $53.5 million. In addition, our pre-cash flow increased to $48.8 million.

Sirona’s results benefited from our strong showing at the IDS in March, which resulted in numerous orders both at the show and in the month following.

During the quarter, our revenue growth was broad-based led by our CAD/CAM and treatment center segments which increased double digits. Our imaging segment declined 9.1% on a constant currency basis which we believe was relatively better performance than the market. Importantly, our new product launches including TENEO and CEREC AC are performing well. TENEO was rapidly becoming the best selling treatment center in its class. The CEREC AC was responsible for delivering the strongest quarter ever for non-US CAD/CAM sales. CEREC continues to draw stellar reviews.

Just last week Dental Products Shopper, a consumer reports for dentists, published a review of the CEREC AC and gave it the rating of 4.9, the highest rating our product has ever received from that publication.

Finally, I note that the difficult global economy is having its impact on the dental market. However, we believe that our ability to innovate and manufacture high technology products that aid dental professionals and their patients make Sirona a formidable competitor in each of its four business segments.

With our history of innovation and investments in research and development, our results clearly demonstrate that we are winning in today’s challenging marketplace.

I will now turn the call to Simone for a review of our results.

Simone Blank

Third quarter revenues were $180.6 million down 3.4% compared to prior year, but up 6.2% constant currency. Our third quarter revenues benefited from our international footprint, orders from the biannual IDS, and the solid contribution from our new product launches. Now, I would like to highlight the quarter’s regional development.

International revenues increased 2.5% or up 17.7% on a constant currency basis. Germany had solid performance after the IDS show with strong growth in treatment centers, CAD/CAM, and imaging. Markets outside of the US and Europe showed solid growth building our sales and service infrastructure in many of these markets. At the European market, that is, excluding Germany had mixed performance with positive results in France, The Netherlands, and Austria while the UK and Spanish markets were weak.

Our US revenues declined 17%. Despite strong underlying CEREC demand, our US CAD/CAM revenues declined. During the third quarter, we shipped every CEREC AC that we manufactured. The decline in US CAD/CAM revenues was due to timing as we substantially increased shipments to international markets which had the record level of sales in the period. Additionally, our US imaging revenues were impacted by the timing of certain promotions.

Moving on to a review of our business segment performance; revenues in our CAD/CAM segment increased 4.9%, up 12.7% constant currency. CAD/CAM segment gross profit margin was 68%, down 40 basis points compared to prior year. Outside the US, we had a record quarter for CAD/CAM sales. We saw strong growth in Germany, the rest of Europe, and our other international markets. The trade-up program was started in May of this year, and to date, the response has been very promising. Imaging segment revenues declined 15.9%, down 9.1% constant currency. Imaging segment gross profit margin was 58.9%, up 20 basis points compared to the prior year period.

As Jost mentioned, this was respectable performance given what we are seeing in the global marketplace.

Our imaging business in the US slowed up as the successful ship promotion ended in April. GALILEOS performed well, and in particular, the Compact which is gaining traction with general practitioners. Across the various markets, we continue to see pricing pressure for 2D panoramic and 3D imaging products. Despite the decline we saw in the category, we believe that our imaging segment held or gained market share in the quarter.

Treatment centers had the strongest segment revenue growth, up 5.8% or up an exceptionally strong 20.8% on a constant currency basis. Treatments center segment margin was 42%, 510 basis points above the prior year. Gross margin performance was the result of increased revenues and good performance for our premium treatment centers. Revenue growth in the treatment center segment was driven by a solid performance in Germany, Austria, Australia, France, and Switzerland.

Instrument revenues declined 7.3% on a reported basis but increased 6.1% constant currency with particularly good results in the Middle East and Canada. Instrument segment gross profit margin was 43.7%, down 80 basis points compared to prior year due to product and regional mix.

Operating income plus amortization expense was $42.6 million, up 26% compared to prior year. This quarter’s results include a $1.8 million restructuring charge. Excluding this charge, operating income plus amortization was $44.4 million, up 31.3%. Operating income plus amortization as a percent of sales increased 550 basis points to 23.6%.

And now, I will review some of the P&L details: Cost of sales was $93.8 million for the quarter, a decrease of $9.7 million or 9.4%. Gross profit margin was 48.1%, up from 44.7% in the prior year. Cost of sales included deal related amortization and depreciation expenses of $16.6 million versus $21.9 million for the same period last year.

Moving on to operating expenses; SG&A expense was $53.4 million, down $10.3 million. As a percentage of sales, SG&A expense was 29.6%, down from 34.1% with the reduction driven by foreign currency exchange fluctuations and targeted expense controls. R&D was $9.9 million, down $1.9 million. The decrease in R&D was mainly due to exchange rate fluctuations and the timing of our new product introductions.

In December 2008, we announced certain targeted actions to reduce the operating costs. These actions predominantly relate to overhead functions in Germany including increased alternation of processes, the optimization of the supply chain as well as an increased efficiency of our administrative functions.

In the third quarter, we incurred restructures costs of $1.8 million consisting of employee severance pay and outside consulting fees directly related to the restructuring plan.

Our short-term cost savings and deferral programs are progressing as planned and we expect to realize about $10 million in lower costs as a result of these initiatives.

Foreign currency gain amounted to $5.1 million in the quarter, comprised mainly of $4.8 million non-cash unrealized gain on the revaluation of the Patterson exclusivity payment and the $3.1 million gain on the revaluation of short-term intra-group loan.

Net interest expense was $5.3 million compared to $6.6 million with the reduction due to favorable exchange rate, lower interest rates, and lower overall debt levels.

The income tax provision for the third quarter of fiscal ’09 was $6.7 million compared to $3 million for the prior year period. We now estimate the fiscal 2009 effective tax rate to be 24%, down from our previous estimate of 28%. The reduction in tax rate for 2009 is driven by the estimated distribution of profits across different countries.

The company’s net income was $20.5 million compared to net income of $6.7 million in the prior year. Third quarter 2009 GAAP EPS was $0.37 compared to $0.12 in the prior year. Third quarter 2009 GAAP EPS included a $0.24 expense for deal-related amortization and depreciation, a gain of $0.07 related to the revaluation of the Patterson exclusivity fee, a gain of $0.04 related to the revaluation of intra-group loans, a $0.025 charge related to our restructuring initiatives and a $0.015 gain on the release of reserve related to the sale of the subsidiaries. In the prior year quarter, GAAP EPS included $0.30 of deal related amortization and depreciation.

Excluding these items in both periods, third quarter fully diluted earnings per share was $0.51, up 20% compared to $0.43 per share in the third quarter of 2008.

Moving on to cash flow; operating cash flow was $53.5 million and capital expenditure was $4.7 million. At June 30, 2009, the company had cash and cash equivalents of $134.1 million and total debt of $463.6 million resulting in net debt of $329.5 million. This compares to net debt of $403.8 million at September 30, 2008. This reduction of $74 million in net debt was mainly driven by strong cash flow from operations in the 2009 fiscal year. During the quarter, the company paid back the first scheduled debt repayment of $79 million approximately 6 months ahead of schedule. Finally, as Jost mentioned, we are reaffirming our guidance for fiscal 2009.

The third quarter of 2009 continued to be a challenging environment. Having said that, our business is tracking in line with our expectations this fiscal year, and we believe that both revenues on a constant currency basis and operating income excluding amortization will be flat in fiscal 2009 as compared to prior year.

We would like to remind our investors to evaluate our business on an annual basis as our quarterly progression can vary significantly. This is particularly true given that 2009 is an IDS year and the quarterly progression is shaped by our product launches.

I will now turn the call back to Jost.

Jost Fischer

As you can see, Sirona had a solid quarter in a challenging economic environment. This performance was the result of our innovative products that enabled dental professionals to improve their practice with the latest advancements in dentistry. Sirona has a proud tradition of innovation and the longstanding commitment to research and development as demonstrated by the successful launch of TENEO and CEREC AC. Both products are setting new standards in dentistry and that is good news for doctors and patients.

The CEREC AC has received significant interest from dentists around the world. Ease of use, outstanding quality, and the ability to capture full quadrants quickly demonstrate our performance. In addition, we are seeing solid interest from the CEREC users many of whom are looking to upgrade their systems.

I would now like to discuss our treatment center segment which posted the highest revenue growth of all four segments, up 21% constant currency.

TENEO was the result of many years of research on the need and requirements of dentists and patients. TENEO was attractive, ergonomic and functional. Dentists recognized this and have responded with their purchase orders, but it is not only dentists who are impressed with TENEO. TENEO was awarded the IF design award and has been nominated for other awards.

Another notable development coming out of the IDS was the GALILEOS/CEREC integration. As you may recall, this technology combines the diagnostic capabilities of GALILEOS with the high quality esthetic restoration solutions offered by our CEREC system. This enabled dental practitioners to plan and create customized dental implant solutions more easily with a substantially lower level of risks. We are the only company with a product portfolio to integrate these two technologies, and therefore are well positioned to capitalize on this market as it develops.

Moving on to outlook; our guidance assumes growth in the second half of the year. With the success of our new products at the IDS, the outstanding AC launch, and targeted cost reduction programs were cautiously optimistic about the fourth quarter of fiscal 2009. Our business trends are positive right now, but we have to acknowledge the weakened state of the global economy.

So, as we move forward, with our continuing investment in research and development, best in class technology, robust relationships with our key distribution partners, and strong financial performance, we are well positioned to successfully compete in the market.

Before I open the call up to your questions, I would like to thank and acknowledge our distribution partners led by Patterson Dental and Henry Schein for their contributions towards Sirona’s strong performance.

In closing, I am confident that we’re well positioned to compete effectively in the markets we serve. We will continue to focus on making best-in-class, innovative dental products that take dentistry to new heights.

With that, Simone, Jeffrey, and I will now address your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Brandon - Bank of America - Merrill Lynch.

Brandon - Bank of America - Merrill Lynch

Could you discuss perhaps the organic revenue trends you saw through the period; did you see trends improve sequentially through the quarter and any comment on the momentum whether that’s continued into July?

Jost Fischer

Yes, I think positively we’ve seen sequential growth and we also have seen the growth continuing into July. This is especially true for our US trend.

Simone Blank

Looking at the third quarter we are encouraged by the performance in that quarter obviously and the AC launch has gone well in the quarter and we have the opportunity for the AC upgrade program for the rest of the year, and we had an excellent IDS, and I think that’s very visible in the quarterly numbers; TENEO is doing well. We’re looking for an improvement in imaging in the fourth quarter and the comps eased a little bit in the fourth quarter for us, we have our short-term cost savings in place, and we will also benefit from the mix towards our higher margin products.

Brandon - Bank of America - Merrill Lynch

Can you talk a little bit more about what you saw in the US during the period particularly on the CAD/CAM side; should we expect that to bounce back in the fourth quarter?

Jost Fischer

Absolutely. As you see and Simone has stated on the call, we shipped every unit that we have manufactured, and while our upgrade program in the US was running during the quarter and just ended I think a couple of days ago, we will address this market in the fourth quarter, and add to that we will fill the demand and the backlog is healthy. Certainly, we are not losing any orders because of timing here.

Simone Blank

We had a record quarter just to add to Jost’s comments in international markets as I just said.

Brandon - Bank of America - Merrill Lynch

In CapEx, looks like it’s running a little bit light here; I think you previously talked about it being a little lower than $35 million for the year. Is there something in the fourth quarter that we should anticipate or would you consider this a steady run rate, perhaps into 2010 there?

Simone Blank

The normal run rate for full year is 3% to 4% as we mentioned before. I would think the quarter was okay. You also have to always take into account the impact of FX on it. So, if the euro is strong, that number could look a little bit lighter and vice versa.

Brandon - Bank of America - Merrill Lynch

Lastly, do you perceive any impact from the FDA’s recent reclassification of amalgam to a class II device; what type of impact do you think that could have on your CAD/CAM business going forward?

Jost Fischer

Yes, when I look at that, some analysts have written about that the FDA restrictions impose for the use of mercury. This is consistent what we’re seeing around the world with increased regulation and lower usage of mercury consequently. Some countries even have banned that product, Sweden and Norway, to name a few; other countries have put restrictions on the use of mercury amalgam. In Canada you can’t use it for women of childbearing age or for children. We expect the trend towards increased regulation of mercury usage will result in increased usage of modern biocompatible materials and will add to the trends towards chair-side CAD/CAM very clearly.

Operator

Your next question comes from the line of Gregory R. Brash - Sidoti and Co.

Gregory R. Brash - Sidoti and Co.

Curious that the IDS you mentioned and you saw strong orders at the show in the month following; did those orders carry through through May and June and into July or was it just pick up right away and things scaled back a little bit?

Jost Fischer

No, usually it’s a process direct IDS orders are fulfilled within like the 3 or 4 months after the show, but the fallout of the show usually stretches into the two or three quarters of our next fiscal year. So, IDS as a product launch is an enabler and you will see a spike, but you will see continuous demand after that. That’s been the history and we expect that to be the same this year.

Gregory R. Brash - Sidoti and Co.

You were looking to strip $10 million out of cost this year; SG&A was a lot lighter than what I was looking for, how much of that $10 million has come through already and should we not expect much of a sequential uptick in Q4?

Simone Blank

The SG&A line, there are two things that impact the SG&A line this quarter. First of all, you heard me say that before, but if the FX of the euro and US change with it because the majority of our expenses are euro denominated. So, that is a big sector in the quarter, but in addition, we saw impact from our cost saving and deferral program that also hit that line. Last quarter and the quarter before we mentioned that we would be around 32% level SG&A full year, but I think there is perhaps some opportunity here for us this year.

Gregory R. Brash - Sidoti and Co.

So you think there is a chance you could be below 32% full year?

Simone Blank

There is an opportunity, yes.

Gregory R. Brash - Sidoti and Co.

Just to clarify the CAD/CAM in the US; due to some of the timing, are you implying that there is more demand than you were able to fill in the quarter and that’s what’s giving you confidence moving into Q4?

Jost Fischer

Absolutely. The demand in the US, the underlying strength, is there and on top of that we’ll have the upgrade program that will kick in in this next quarter.

Jeffrey T. Slovin

Which we’re very pleased with how that’s developing.

Jost Fischer

Absolutely.

Gregory R. Brash - Sidoti and Co.

Outside of CAD/CAM are you seeing any changes in dentist sentiment to going out and buying capital equipment or is it that many dentists are still waiting on the sidelines, waiting to see what the economy does.

Jost Fischer

I think when we look at all our product portfolio, we can say that the dentists that are ready to buy, they look at options from hi-tech first and decide and from that point we explain part of our result because of that, but the trends are better explained by our distributors from that point of view, but what we are hearing is that general trends are stabilizing certainly in the US, in Germany; the underlying demand has been good; also, the sentiment is there in the more regulated markets. Anyhow, patient traffic was not so much of a problem.

Gregory R. Brash - Sidoti and Co.

Just one more quick one; you looking for 24% tax rate in fiscal ’09; is that something we should be using for fiscal 2010 or would it be safer at 28%?

Simone Blank

What I can say now is that last year we had 24%, this year it looks like the same, at least the estimation; so for now it could be reasonable estimate.

Operator

Your next question comes from the line of John Kreger - William Blair & Co.

John Kreger - William Blair & Co.

Just a followup on that last question; I know you don’t normally like to give guidance for the coming year until the end of your fiscal fourth quarter, but it seems like you’re in good shape as you come into the end of fiscal 2009; any early thoughts on whether or not you can get back to a growth mode in fiscal 2010 for the whole year?

Jost Fischer

John, we have not finalized our numbers for next year, but repeating what I said before, we’ve seen some indications that the markets are stabilizing especially in the US. Our European trends in Germany or in Central Europe were good anyhow. We see still some weaknesses in some other European countries, but it is too early to give an outlook for next year, but we will update you on our next call on this.

John Kreger - William Blair & Co.

Could you just drill down a bit more on the imaging category; I know you said you think you’re pretty well considering what that category is doing; where are you seeing the weaknesses in that market, is it the 2D panoramic versus 3D; how’s the intra-oral digital market playing out from your perspective?

Jost Fischer

Generally we see of course the challenging economic environment for imaging out there. We’re taking market share due to our hi-tech best-in-class product offerings, and of course our excellent relationships with our top distributors including Patterson and Henry Schein. We’re seeing signs of improvement especially in the US helped by new promotions and our launch of the CDR Elite sensor that certainly will help and that’s evidenced by a good July order backlog. Maybe Jeffrey can give some additional color on the reasons there.

Jeffrey T. Slovin

Yes, certainly. I think in the US we talked about a strong April and we had a nice promotion that ended in April and then we launched our CDR Elite which is our best-in-class image quality ease of use and replaceable cable which we actually are selling for more than 20%. More than that was launched in May and we’ve seen early success from that; Patterson territory reps and the equipment specialists are very excited about that. We also launched a June promotion which we’re seeing traction and we saw traction into July. As Jost mentioned, we have some nice backlog. Germany remained strong, Galileos, we believe we continue to gain share, we’re particularly pleased with the acceptance of our compact unit with the general practitioner.

John Kreger - William Blair & Co.

What are your dealers in the US telling you about their ability to access the credit markets to finance equipment; is that still pretty tight or is that improving?

Jeffrey T. Slovin

I think that our dealers are finding the ability to access the financing markets. I think that while it’s certainly always a challenge, this has not been an issue for either Patterson and Henry Schein.

Operator

Your next question comes from the line of Glen Santangelo - Credit Suisse.

Glen Santangelo - Credit Suisse

Jost, I just wanted to follow up with some comments you made in your prepared remarks suggesting that the US market is stabilizing and maybe if I heard you just correctly a couple of minutes ago you said that the markets around Europe were a little bit more mixed. Based on the results you saw this quarter, we obviously expected the non-US business to be up because of the international dental show, but was Europe probably a little bit stronger than you expected and the US a little bit worse or did it play out as you thought?

Jost Fischer

It’s a mixed answer. First of all, IDS was very positive evidenced by a large number of additional visitors out there, big interest, and the success of our product launches. So, Central Europe which is mostly affected by IDS had a strong quarter and has a good momentum at this point in time. Whereas some other European countries as said showed some signs of weakness and I will attribute that to the general economy; when you look at Spain, with the housing market there; when you look at the UK, with the pound that is in there. Now, moving to the US side of it; the underlying trends in the US markets are solid, but as Jeffrey explained in the imaging side promotion certainly is an enabler these days and with the absence of two-thirds of that or a quarter of the promotions, that was a little bit more difficult, putting it back on is helping greatly. Second, the CAD/CAM side of it was just a timing issue. We have a backlog here and we feel strongly about the opportunity in the US and that will show in the numbers.

Glen Santangelo - Credit Suisse

Just if I summarize what you’re seeing, you’re seeing that some of the promotions on the imaging side gave you some momentum into July and should help as you move into the backhalf of this calendar year, and then secondly, on CAD/CAM you are suggesting that you had unmet demand in that product category in the US, but you don’t feel like you lost any sales and those issues should correct themselves in this next quarter. Is that fair?

Jost Fischer

We did not lose any sales and you’ve summarized it absolutely on the point.

Glen Santangelo - Credit Suisse

My last question was on TENEO; could you just remind us all exactly what month you launched that product. I am trying to get a better sense of when the gross should level out in that category.

Jost Fischer

We launched this product at the end of last year and we went into the IDS where the real launch was happening and certainly when you make a launch like the CAD/CAM product, everyone will pick it up immediately. Success is seen in the chair as it is a replacement market; people take a little more time to evaluate and don’t make their decisions like on the spot. So, from that point we’re very pleased with the performance of TENEO and this reaction and the purchase orders from our dentists are an indicator that this product is going to be successful also going forward.

Operator

Your next question comes from the line of Ross Taylor - C.L. King & Associates, Inc.

Ross Taylor - C.L. King & Associates, Inc.

I missed part of the call and so some of this may have been answered, but do you have any thoughts in terms of what you might do for additional debt pay-down over the next year or so?

Simone Blank

This is always a consideration because we’re obviously focused also on the leveraging, but there are no specific plans at this point in time. The scheduled repayment is due in November 2010 and obviously we de-lever materially throughout the last three years.

Ross Taylor - C.L. King & Associates, Inc.

I don’t know if you all care to give any forecast or maybe can you tell us about your expectations of what the mix of CAD/CAM sales might be some of the upgrades versus new placement stuff going forward.

Simone Blank

As we said earlier, we have seen very strong demand in CAD/CAM globally including the US obviously and in the US we think there are opportunities from the trade-up program that is in place and I think that’s a very encouraging situation.

Operator

Your next question comes from the line of Jeff Johnson - Robert W. Baird & Co.

Jeff Johnson - Robert W. Baird & Co.

Jost, most of my questions have been answered, in fact almost all of them have been; the one thing I am sitting here to just try and contemplate and figure out as I stare at my model is the comp goes from up 8% this quarter that you came up against down 5% next quarter and everything you and Jeff and Simone talked about here is that momentum was building through July, that it stays strong, that US is going to bounce back; so it seems to me like we should get even a nice pop off this 6% this quarter into the fourth quarter. So, either your guidance is ridiculously conservative or I am missing something, and I guess I’d like to hear just what or how you think of that.

Simone Blank

Jeff, our guidance calls for flat revenue on a constant currency basis and on the revenue line I think that’s important to remember, and then obviously flat on the OIs plus amortizations, and that’s driven by the things you heard from us. The third quarter encouraging performance, the AC launch, the possibilities from the trade-in, the cost saving measures we have in place, the easing comps in the fourth quarter, the TENEO performance, and looking for an improvement in imaging in the fourth quarter, and so forth. We’re positively optimistic as we say and we’re seeing some signs of improvement in the current quarter, and underlying trends are encouraging.

Jeff Johnson - Robert W. Baird & Co.

Understood, maybe I am doing my math wrong here Simone, please correct me if I am wrong, but your guidance for Q4 implies organic growth somewhere in the 2% to 3% range versus the 6% this quarter; at least that’s what the guidance implies?

Simone Blank

Yes, that’s about right.

Operator

Your next question comes from the line of Tycho Peterson - J.P. Morgan.

Tycho Peterson - J.P. Morgan

I wanted to actually just dig in a little bit more on the color you’ve provided on the imaging business; was there a meaningful sequential decline here and can you talk a little bit more about maybe some of the pricing trends that you’re seeing in the market and where I guess there’s the most pressure?

Jeffrey T. Slovin

Again, we continue to see the pricing the most greatest of an issue in the 2D and 3D and that is throughout Europe and then the US. So, that’s where we see the most pricing. We saw some challenges when we took off our promotion in April and so we saw some slowness, but then we put the promotion back on in June and as we said we saw some positive development from that and actually leading to a backlog. So, we believe this is really about a timing issue; 3D is challenged, but we’re very pleased with how our Galileo is competing in the marketplace.

Tycho Peterson - J.P. Morgan

We saw pretty negative numbers from one of the other dental companies recently and I am talking about Danaher which I think was down about 10%; understanding there’s obviously a big difference in mix, can you comment on maybe potential share shift in general in the market and where you think you may be picking up share?

Jost Fischer

When you look at our product offerings, best in class and innovative, I think I elaborated on that a little bit earlier, we are competing and winning through that, and of course besides good products, it’s great execution and service, sales and service infrastructures, that help us worldwide to achieve our goals.

Tycho Peterson - J.P. Morgan

Jost, can you provide some longer-term view on what you think the underlying market growth might be for CAD/CAM imaging and treatment centers as you think out the next couple of years.

Jost Fischer

We’re encouraged by the trends that we have and when you look back historically, always when there was an innovation brought on from Sirona, we had a pickup in growth and penetration, and we expect it to continue this time although the economy is a little more difficult than it has been in the past.

Tycho Peterson - J.P. Morgan

The IDS effect, you’ve talked about this every other year; was there any change in the pacing this year relative to prior years or was it pretty consistent with you’ve seen in the past?

Jost Fischer

This IDS was the best ever for Sirona. It was pretty consistent in what we had seen two years ago, only on a higher level, and from that point I can say, yes it was better than we expected it as I said, but the underlying way of execution and trends remain pretty similar to the trends we’ve seen before.

Operator

There are no further questions in the queue at this time.

John Sweeney

Thank you very much for joining us today in our third quarter conference call, and I know that the whole management team looks forward to speaking to you on our next quarterly conference call. Thank you and have a good day.

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Source: Sirona Dental Systems Inc., F3Q09 (Qtr End 06/30/09) Earnings Call Transcript

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